Q2 2021 Alkami Technology Inc Earnings Call

August 4, 2021

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Thank you for holding for the second quarter 2021, Alchemy Technologies' financial results Conference call. We will begin in just a few minutes. We appreciate your opinion please continue to standby.

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Welcome to the second quarter of 2021, Alchemy Technologies' financial results Conference call.

My name is Vanessa and I will be your operator for today's call at.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer second.

During the question and answer a second if you have a question. Please press Star then 1 on your Touchtone phone.

Note that this conference is being recorded.

I will now turn the call over to your host Rhett Butler, Vice President Investor Relations.

Thank you Vanessa good afternoon, and welcome to Alkermes earnings call for the second quarter ended June 30th 2021.

With me on on today's call are Mike Hansen, Our Chief Executive Officer, Steven Bohemian Alkermes, co founder and Chief strategy, and sales Officer, and Bryan Hill Alchemy, 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 related to our operating and 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.

In 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 materially from those reflected in the forward looking statements.

Forward looking statements made during the call are being made as of today August 4th 2021 day.

Just on the facts available to us today, and we undertake no obligation to update or revise any forward looking statements on.

Also unless otherwise stated all financial measures discussed on this call will be on a non-GAAP basis, because we believe these measures to be useful to investors in the understanding of our financial results. A reconciliation of each comparable GAAP metrics 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 all for joining us on the call and I'll turn it over to Mike.

Thank you Rob and thank you to everyone joining us today for this on our second earnings call.

Since we were here in early May with team of over 640 ALCHEMIST on our partners have continued to be hard at work.

Moving against our mission and we are very excited to be sure renewal results today.

Brian will get more into the details momentarily, whereas you may have seen on the press release, we'll be able to go financial performance. During the second quarter was again solid across all of our metrics.

Additionally, during the quarter, we continued to advance the important aspects of our business, including the go to market product operational technical compliance security and aspects of our business.

About 10 months now and we continue to be on track with our integration and synergy objectives with our Hgh alert acquisition with some news to share later in the call.

So as we went through our in market the community on the regional financial institutions in the U S. We think the digital transformation on financial services is continuing to accelerate and.

In our view a number of factors contribute to this acceleration.

First we continue to see significant market investments in Fintech and financial services offerings in companies.

These investments in the form of Ipos, and private equity and venture capital transactions.

Airpower in existing and new players to create or scale targeted digital financial products, and even offerings, including crypto currency.

For consumers and businesses alike.

Frequent examples of these investments, resulting in M&A activity on the space as well.

Further the big Tech companies on major retailers also remain active expanding their digital capabilities and the financial services space from digitally provision credit cards and prepaid cards to Chuck checking accounts to buy now pay later offers and yes, even crypto and of course, the Mega banks or continued up you Andy on their own right.

Just 1 of them spending approximately 11 billion on technology annually.

As a result of these factors we believe our end market continues to move at a relentlessly accelerating pace reflected by the interest of so many players to digitally expand or redefine or dis intermediate financial services for consumers and businesses in the U S.

This competitive landscape of financial services requires the financial institution squarely at alkermes addressable market to move at a speed and certainty to identify and seize their strategic opportunities enabled by the technology income.

Currently identify on response to the strategic trips from competitors that are often greater as we have often greater resources.

Is this dynamic landscape a volume market that continues to propel market demand for alkermes digital platform when that continues to advance its speed and allows our clients to innovate quickly and compete effectively against others with many times their scale.

We can use it to continue.

Continue to believe the battle for relevance and success in this digitally transforming market for the community on the mutual bank or credit income has never been more important.

That's a bit more color on this transformation in June we solicited feedback from 150 leaders and regional and community financial institutions that have influence over their digital banking decisions.

2 thirds of these respondents were senior executives within their institutions.

When I asked to identify their institutions greatest risk over the next 18 months.

This table changing technology landscape was cited more often than any other risk listed including the risks of interest rate environment, cyber threats and uncertain regulatory environment.

We believe that the digitally focused community and regional.

Initial institutions aware of this risk and armed with the right tools to complement their own unique capabilities have thrived and can continue to thrive in this digital world.

We continue to do so they will increasingly need innovation and extensible platforms like alchemy that can deliver digital innovation at speed and scale to power their strategies over the long term.

In terms of results from our community and regional financial institution clients, we've seen them continue to perform exceptionally well in terms of supporting their employees consumers businesses and communities. During these times stories happening until about <unk> going the extra mile.

Kudos to our clients and their teams for what they are doing and how they've done it.

And their success is equally evident in their business results with year over year asset and deposit growth well above industry average.

Digital user growth of our clients' exceeding 17%.

To give you an idea of how our digital banking platform helps power the results on a financial institution I'll take a couple of minutes to outline the results of a client through a specific case study.

The case study is from a strong west coast financial institution, and a very competitive market with over 100000 digital users and over $2 billion of assets.

We completed the implementation on launch them during the second quarter of last year with 14 products.

Financials Tuesday on specific strategic need they're looking to alchemy to help with naturally the main focuses where around improving their end user experience their end user sentiment or satisfaction for their app lets say app store ratings. The overall end user satisfaction of the digital channel NPS.

NPS scores there digital user growth on their mobile banking penetration I'll touch a bit on each of those.

First after researching top tier financial institutions and finding their user sentiment average for our client set a stretch goal of achieving a 4.9 raising price.

Prior to converting to the alchemy platform. They had on iOS rating of about $2.9 and Google rating of about $4.3 for a weighted average of about 3 point out.

Post conversion to alchemy, they're operating skyrocketed to an iOS rating of 4.9 with nearly 13000 reviews in a Google rating of 4.9 with nearly 1800 reviews for a weighted average of about 4.9 stars. This equates to a 63% increase in end user satisfaction.

Second after diligence with other financial institutions, the client determined that most digital banking platform conversions resulted in an NPS score drop for the digital channel of at least 10 points with a recovery taking at least a year.

Together, we executed a plan to deal with those realities around the big change event and together with their health of the alchemy platform to fully recover to their previous NPS score of a very lofty 85, 6 and 6 months and within a year they were beating their whole lofty scores. This performance ranked them 6 overall versus.

The large survey peer group survey firms peer data.

Third our client obviously wanted to grow their digital engagement with their new and existing customers members.

And to grow their digital users in that way on prior to the ultimate platform conversions, they experienced about a 11% annualized user growth and post conversion there annualized user growth results and expectations have grown significantly to around 18%.

We're excited about this this is not only the strong user growth with the fact that that growth was relatively consistent between the new and existing customers and members.

This translates to tremendous success in engaging these new customer members, but also significant results in penetrating the existing base.

Lastly, given the importance of the digital channel mobile banking penetration engagement, we're incredibly important factors for our client prior.

Prior to the alchemy platform conversion Theyre mobile conversion was 50% against an average of about 54% per.

Conversion mobile penetration was 66% this incredible success.

And a testament to our clients' team capabilities on strategies combined with the power of the alchemy platform.

This client success stories like this that power us here at alchemy and form the bedrock of our innovation motion ensuring our solutions.

To deliver the results for our clients digital strategies today and tomorrow.

<unk> through this innovation motion are at the center of each of our 4 key growth drivers discussed on our last call.

Ryan will briefly highlight these drivers again in his remarks following Stephens in a few moments.

Next let me turn it over to Stephen go hand, and to update you on our innovation and go to market activities I'll be back at the end of the prepared remarks.

<unk> with a few comments before we go to Q&A with that I'll turn it over to you Steven.

Thanks, Mike.

As I touched on last quarter's call, while our engineering teams.

Ah patients across the platform our primary focus areas, our business banking functionality and user experience enhancements with an emphasis on mobile extensibility and our data solutions during the quarter. Our latest software releases that we deliver to all clients contained new functionality in line with that focus on I'll briefly discuss each area.

From a business banking perspective, we launched mobile business registration as well as business pay on account analysis features Dysfunctionality provides our clients with a more streamlined process for on boarding new businesses and their business clients with exceptional pay your management capabilities scaling to thousands of Pes. In addition, the kind of analysis functionality increases billing flexibility for individual businesses.

A key feature needed to serve service larger businesses, we continue to heavily invest on our small business and commercial solutions and as a result of these efforts. We're pleased to have signed 2 additional $1 billion plus commercial banks in July.

From a user and user experience enhancement perspective, we launched new functionality around our card experience financial wellness and our money movement capabilities for debit and credit cards. Our clients can now take advantage of new Multifunction authentication options advanced alerts international alerts and controls merchant type and transaction type controls cards on the associated revenue.

Crucial to many of our clients and so it's critical we provide the user experience that keeps their cards top of wallet. Our financial wellness solutions also now utilized refreshed user experience with deeper partner integration and new visualization tools to help drive and App engagement and finally, we launched a new product that provides real time account ownership verification for money movement to and from <unk>.

Darnall accounts are instant account verification product reduces the friction and abandonment rate during the account verification process and also helps to mitigate fraud through account holder name matching. This is another great example of delivering a positive user experience while at the same time, helping our clients mitigate fraud.

From an extensibility perspective, we launched new functionality around registered applications registered applications are trusted systems like PFM sites on Aggregators in devices like smartphones or voice assistance that had been granted trusted access to your financial accounts with the proliferation of interconnectedness on open banking initiatives in general many users who are unaware of some.

Apprised of just how many of these applications have trusted access to their financial data our new functionality here makes it easier for end users to view and manage which applications have access to their financial accounts. So they can ensure their own privacy and be on the lookout for potentially fraudulent activity from.

From an extensibility community perspective, I'm happy to report continued momentum with our gold partner program on our SDK developer community, which continues to increase in size and activity with June having the highest number of monthly project submissions at 97.

Finally, we continue to make investments in data and our data set continues to grow with a codified anonymised data warehouse that is collected and claims now over 5 billion transactions across more than 150 financial institutions. We believe alchemy is 1 of the deepest on richest transaction on account detailed datasets in the country combine this data along with user interaction and behavior data we have.

<unk> this data into actionable insights through products like our new executive dashboard to support our financial institution's digital growth strategies, the new executive dashboard provides the institutions with their historical performance over time across 10 key digital banking kpis that explore adoption engagement and conversion what's more we provide the benchmark comparison of the.

<unk> individual performance against that of its peers. This deep level of insight allows us to formulate gross strategies with our financial institutions based on kpis across the digital funnel.

The adoption engagement or conversion.

In conclusion, we continue to innovate with speed.

Across the strategic priorities that we believe will differentiate our clients on the outcome by 1 delivering a superior user experience for both retail and business users that taps into deep extensibility capabilities into equipping our financial institutions with insights across a comprehensive data set of user transactions and institutional day digital banking benchmarks are innovation and.

<unk> continues to be central and offering our clients, a functional and technical advantage against existing and emerging competitors.

Next I'd like to discuss sales momentum on our overall go to market engine as I mentioned on our Q1 earnings call. The arrival of our new CMO Allison Sarah earlier, this year and investments on our digital marketing engine are paying off while some in person meetings and conferences are starting to come back they're not at the same levels pre Covid. This has increased our reliance on the digital channel for <unk>.

Lead generation and we're very happy with the results with year to date lead generation from digital channels outpacing leads from non digital by 3 times, we feel the business momentum for financial institutions evaluating their digital banking solutions as measured by pipeline growth has really picked up in the second quarter trailing 12 month, new sales were up over last year and our new sales pipeline is strong with banks.

Presenting well over 20% of the largest pipeline in our history as I stated a moment ago, we signed several banks during July specifically, we signed 2 new $1 billion plus banks to our digital banking platform and a top 30 bank with over 150 billion in assets to our AC H alert solution. Our first half 'twenty 1 sales results combined with the pipeline in July new wins.

Gives me confidence in our go to market traction.

We'd like to provide a few more comments regarding the success of the <unk> acquisition. The <unk> solutions team continues to show the potential we identified pre acquisition during the quarter, we had our fourth patent issued and since the acquisition on October of 'twenty, We've achieved new sales of 48 banks and credit unions. In addition sales of additional products have been positive increasing penetration into <unk>.

For large clients ranging from 15 to almost $50 billion in assets.

And innovation perspective, new functionality is expected to be released in the near term around deeper integration with our digital banking platform on the horizon is perhaps the most exciting innovation in near term on multi payment risk processing engine expected sometime during 2022 when delivered this would make alchemy. The first digital banking provider to offer not only electronic payment origination.

<unk>, but into end processing of payments originated in digital banking.

In aggregate, we believe we will have a lot more shots on goal this year than the previous year and we expect to continue to focus on execution and converting our pipeline across all financial institutions, including credit unions and banks I will now hand, the call to Brian to discuss our Q2 financial performance.

Thanks, Steven and good afternoon, everyone.

Second quarter financial results were strong across the board, let me start with revenue we enjoy a highly predictable subscription based revenue model possessing several growth drivers.

First our client success utilizing the alchemy platform to fuel their digital strategies and grow their digital communities. We refer to this as organic user growth second expanding the solutions, we offer and our clients adoption of our solutions through cross sell activity third new clients, joining the al can be digital banking.

Platform through new logo sales, which can take approximately 12 months to materialize into revenue and typically timed with the contractual term of the incumbent digital banking provider and finally M&A activity. We continue to evaluate the M&A landscape as a way to drive organic revenue growth over the long term.

Add new features and functionality and drive compelling risk adjusted returns for our shareholders overall.

Measure our topline performance in terms of total revenue growth subscription revenue growth to subscription contribution to total revenue and <unk> growth along with the factors affecting our total revenue and subscription revenue both grew 38% for the second quarter compared to last year, our subscription revenue.

Represented 94% of our total revenue.

Annual recurring revenue or <unk> of $144.7 million achieved strong year over year growth of 38%.

Underlying this performance we added 740000 users to our platform during Q2 and $2.4 million over the last 12 months driving digital user growth of 29% and ending the quarter with $10.7 million registered users live on the platform. We believe we are on 1 of the <unk>.

Leading providers of digital banking as it relates to total digital user growth.

Digital user growth has been driven by 2 areas over the last 12 months first we've implemented 24 financial institution supporting 1 million digital users and second our clients have increased their digital user adoption by $1.4 million users representing organic user growth of 17%.

<unk> revs.

Revenue per users the final area driving our strong performance during the last 12 months, we've expanded our RP you by 7% and ended the quarter at $13.48 per user per year. This.

This compares to a market opportunity a blended average of $38 per digital user based on the 26 products we offer today.

<unk> expansion has been derived from 2 areas first we are adding new <unk> the platform possessing an RP U 26% higher than our overall company average from the prior year argued.

And second we continue to see an <unk> advantage, resulting from our client sales organization that are responsible for selling add on products and managing the renewal cycle for our clients. We've renewed 4 clients representing 6% of our total digital users through the first half of 2021 and expect.

Free new several more as we exit the year renewal activity will continue to be a strategic focus adding to our sales results.

Moving on to non-GAAP gross margin our target operating model objective is to achieve between 60% to 65% non-GAAP gross margin over the next few years. We've also stated that we plan to achieve this expansion through 2 to 300 basis points of on.

On average margin expansion per year on <unk>.

Progress towards achieving this objective is candidly a bit ahead of our stated objective for the second quarter of 2021 non-GAAP gross margin was 57, 5% an expansion of over 680 basis points compared to the same period last year expansion was driven primarily by revenue scale.

Greater utilization and cost efficiencies in our client implementation client support and classes success functions and improve cost efficiency with our third party revenue relationships.

Moving to operating expense.

Our goal is to balance investment opportunities with revenue growth yet maintain a good line of sight towards profitability or adjusted EBITDA positive, we have a large market opportunity to address and recognize gaining market share at the cost of near term profitability is the correct tradeoff for where we are in our lifecycle.

We continue to expect to reach adjusted EBITDA positive on a run rate basis. During 2023. This is highly dependent upon our investment trajectory revenue growth and M&A activity for.

For the second quarter of 2021 total non-GAAP research and development expense was $11.4 million up 18% compared to the prior year from a percentage of revenue perspective, R&D represented 31%, which is over 520 basis points of margin expansion compared to the price.

Year period.

Despite modestly higher personnel related costs, primarily due to platform enhancements and innovation initiatives. We achieved significant margin expansion primarily through revenue scale, we expect to accelerate platform projects during the back half of 2021, which I will speak to momentarily.

Total non-GAAP sales and marketing expense was $5.1 million or 31% higher than the prior year period from a percentage of revenue perspective sales and marketing represented 14%, which is nearly 70 basis points of margin expansion, despite higher employee related costs from head count.

And our sales and marketing teams, we achieved leverage primarily through revenue scale and lower than expected costs from travel as well as industry conferences and trade shows all resulting from the continued impact of the COVID-19 pandemic.

Sales and marketing expense will increase during the third quarter of 2021, as we incur costs associated with our annual client conference. We are excited to host our hybrid event and look forward to our clients partners and investors who were able to attend in person. However, the event will be equally as informative to those who choose to attend remotely.

Total non-GAAP general and administrative expense was $10.6 million up 60% compared to the prior period G&A represented 29% of revenue, which is nearly 400 basis points of margin contraction.

A primary driver of margin contraction was the increased cost necessary now that we're a public company, including higher business insurance, and adding new accounting Investor relations legal and human resource personnel.

Total non-GAAP net loss was $6.1 million an improvement of $600000 adjusted EBITDA loss for the quarter was $5.4 million ahead of our expectations as I. Previously mentioned, we are taking the opportunity to pull forward and accelerate certain investment priority is around innovation.

Go to market activities as a result of the revenue and profit over performance.

We continue to be laser focused on the most balance path to revenue growth and long term profitability.

Moving on to cash we had over $338 million in cash on balance sheet as of June 32021.

Now turning to guidance for the third quarter ending September 32021, we expect revenue in the range of $38 million to $39 million and an adjusted EBITDA loss of $7.5 million to 6 and a half million dollars.

For the full year ending December 31, 2021, we expect revenue in the range of $148 million to $151 million.

And an adjusted.

Adjusted EBITDA loss of 24, and a half to 2002 and a half million with respect to adjusted EBITDA levels on the back half of the year compared to the second quarter.

As I mentioned, we expect to incur additional costs related to our investment priorities as well as our client conference, resulting in an expected sequential downtick in profitability during the third quarter with a fourth quarter returning to levels similar to Q2 'twenty 1.

I will now turn the call back to Mike for a few closing comments before we start the questions and answers segment of the call.

Thank you, Brian and thank you.

Gentlemen.

Wanted to ask a couple of seconds to recap a few key points on our first full quarter as a public company.

First I'd say alkermes innovation engine in the second quarter remained at the centre of differentiating our clients on our company with a particular emphasis as Stephen mentioned on our UI and UX, emphasizing mobile business banking extensibility and leveraging what we believe is the industry's deep.

Deepest and richest dataset for driving results for financial institutions. Our go to market engine under Allison's guidance has pivoted with the times and is well positioned with the largest pipeline on our company's history represented by a healthy mix of bank and credit Union prospects and we've also seen progress integrating ACTH alert capabilities was strong.

Elevation on sales results posted in Q2 for the strategic area of our business.

Finally, our efforts are also reflected in our solid financial results in 2021 outlook as Brian mentioned total revenue revenue and subscription revenue both grew 38% for the second quarter compared to the prior year digital users grew 29% over the same timeframe ending at over $10.7 million and were running ahead of our stated non-GAAP <unk>.

Margin objectives, and finally, we increased our outlook for the third quarter and the full year.

As I reflect on this first quarter as a public company I am proud of our start and energized by this leadership teams in all alkermes commitment to our vision, our mission and our results.

Simply put we fully intend to be the best digital banking platform of choice for regional community financial institutions.

Yes.

Doing so requires a passion competence for digital banking that is relentless and enduring as to change our clients each and every day.

We will still while we're still new to the public market, we are stronger than ever and our mission hasn't wavered and are now 12 years as a company we remain deeply focused on executing and fulfilling our purpose as ever to the benefits of our clients our partners. Our users investors an ALCHEMIST now I would like to open it up for Q&A I will turn it over to the operator.

And thank you we will now begin our question and answer session. If you have a question. Please press Star then 1 on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign on and if youre using a speakerphone. Please pick up the handset before pressing the numbers once again.

On with your question. Please press Star then 1 after the Q and.

And we have our first question from Matt <unk> with JMP Securities. Please go ahead.

Oh, great. Thank you and congratulations on the second quarter as a public company.

I would love if you could just because I know.

Just because it's on everyone's mind now with with.

On a delta. So can you just remind us of the impact of sort of the first wave of the pandemic on your business and then what it did the deal activity.

And how youre seeing that play out today.

Yes.

Didn't have it on the call thanks for being here with US good question by the way.

<unk>.

We entered this pandemic I would tell you we jumped to it pretty quickly in March we've been in the midst of kind of all the activities financing related for the company and over the course of 1 weekend, where you made the call to be 100% virtual and change kind of how we went about our go to market activities on execution support on implementation activities, just like everybody else on the.

Worldview 2.

Get squared away on that we felt.

We went into that stage, there was kind of a slowdown of new business opportunities commencing like on the forms of Rfps and new activity starting there.

But our launches on their implementation activities just continued with a few adjusted slightly for things going on in their operations. We stayed pretty much on track, we held to our financial plan on sales and revenues in all elements of our financial plan for 2020 and pretty much nailed every 1 of them throughout that year.

So we did see it kind of on a small uptick in the user accounts not a massive adjustment and user adoption by our client base.

And our clients I think after hunkering down.

I'd say coming out of this quarter, we're starting to feel some of the energy back in the May felt some at the end of the first quarter energy coming back into new initiatives and new projects on getting going a little bit for the new initiatives and our client sales has kind of been pretty strong. During this period as our clients who are already on the platform. We're looking for new ideas.

On a new things that they could implement so that's kind of how I would summarize it.

Steven O'brien I want to add to past good question, yes.

I think he.

He was kind of asking about the kind of the delta vary on some of this new stuff coming on line up as well.

Yes, I think that it will be definitely see us as Mike said as activity has absolutely picked back up the biggest dip was kind of Q2 and Q3 of last year as far as net new deal opportunity creation RFP creation I think the only thing that's not kind of fully back yet or kind of all the kind of conferences and trade shows we're seeing some of them still have delayed out till next.

Here are the ones, who are doing versions of them this year or maybe certain versions with mandatory vaccinations and things like that so that part isn't quite back to normal but in terms of overall deal flow RFP generation and so forth.

That's what we're seeing is that that's back to pre pandemic levels.

Great. Thank you for that and I'm glad youre, making the effort to make your conference hybrid.

[laughter], Yeah, I think we started their pad, we're trying to decide how far down the hybrid path, we're going to do actually.

We are still moving around at this point I would also say that member of our team who have been out and about.

Monitoring and with our clients and with their conditions in their respective facilities and things are tightening down again in our client community for what theyre going to be doing I think they are comfortable with supporting it but it is sure having a.

On a day by day impact on the <unk>.

Actions.

Interactions with our clients on our operation.

Alright, thank you very much that perspective.

Sure.

Thank you we have our next question from Sterling Auty with J P. Morgan.

Yeah. Thanks, Hi, guys. So in terms of the.

Incremental investment you are talking about.

The upside on the.

The go to market piece, specifically I am curious how much of that is going to go into kind of quota carrying head count versus some marketing and top of funnel lead generation programs, just help us understand where youre, putting that incremental amount to work and maybe quantify how much that is.

Yes.

But on your touch that 1 little yes Sterling.

Yeah. Thanks, Thanks for the question good talking to you again.

As far as where we're allocating funds for the go to market it's predominantly around.

Marketing activities sales training activities and lead generation, So I would characterize it more on top of the funnel.

Go to market. We're also investing further in our client sales team likely.

Likely to add a couple of quota carrying reps there. We've recently and we may be announced this last quarter.

Because post quarter end, we added.

Rice president level leader within that organization.

On a woman with lots of experience in the digital banking community. So really it's just continuing on a lot of the success that we have and furthering regeneration from sources now that we're more absent or at least lower activity from in person events like trade shows.

On conferences.

Great and if I could sneak 1 follow up and I'm curious.

You kind of teased us with the HTH enhancement for 2022, how should we think about the monetization around that and what kind of revenue opportunity that might lead to.

Well I'll take the revenue opportunity.

It is.

In flight.

And so it's more of a road map items. So in terms of revenue impact in 2022, it would be very little in terms of sales activity.

We will sell in advance of actually delivering the product and then have implementations occurring later, so there could be some in the back half some increased sales activity related to it we were mentioning it on this call just to provide an update on <unk> alert so.

The investment community and others would understand that we're advancing the product and the platform. It wasn't as though we are acquiring something we wanted to hold static because it's a very strong team with great knowledge around what they do in fraud mitigation and we feel it's important to provide.

Insight into how we intend to take the asset further.

Understood. Thank you.

And thank you. Our next question comes from Andrew Schmidt with Citi.

Hey, guys. Thanks for taking my question here and congrats on a good quarter.

I wanted to ask a question about the.

Thanks Syed.

I know you mentioned key commercial bank win in July was hoping you could talk a little bit more about that.

<unk> of those wins and how conversations with banks are evolving generally speaking, particularly as you get more reference clients now that youre more focused on the go to market just curious how the.

Progress on the back end market is evolving.

Yes, hi.

This is Steve I'll take this 1 so I would say that.

That momentum is building there and you hit on it right here. The more references you have the easier it gets to get the next 1 and so I would say that the sales are getting a little easier because obviously, we're winning some we were getting more live we're enhancing a lot of the business banking functionality and features that really have probably been the number 1 reason that wood.

That kept us out on certain accounts.

Right now I think I think I mentioned it earlier, but we've got out of the largest pipeline we've ever had 20% of that are actually bank deals.

And I would say that the list is kind of getting the GAAP list in terms of what you have to do in order to be able to convert those system are those clients over to your system and replace their current system that list is getting smaller and smaller and smaller and so you have people more and more willing to trust you that.

Youll get those things done in time for their launch so I would say that in all those areas.

It's not to the levels, where we are on the consumer side and obviously on the credit Union space, yet and we don't expect it to get there.

The next year or so, but I would say that the positive signs are there on the momentum is there not only in the pipeline, but also in actual contracted deals.

Got it Super helpful. Thank you for that and then just a quick follow up on performance in the quarter.

The outperformance.

When does that primarily related to organic I know you guys have good visibility going into the quarter, but organic user growth timing of go lives just curious to get any sense for the nature of the revenue outperformance this quarter. Thanks.

Andrew could you repeat that question.

Sure I was just hoping to get a little more color on the revenue outperformance in the quarter, what the key drivers square whether it was.

And on a growth exceeding expectations or timing of go lives or anything like that.

Yes, so a couple of things on a from a user perspective.

We grew just over 740000 users during the quarter.

We covered in the quarter were a couple of things compared to Q1, we mentioned last quarter that implementations were more of a mid year story for 2021, and we absolutely saw that with over 475000 users implemented during the quarter, but maybe equally as important but less impact.

Paul was we saw a increase or recovery in the organic user growth of our existing clients that was fairly low or mild in Q1, we saw that recover in Q2, we attributed the Q1.

Modest increase from coming out of the pandemic high user growth and seeing more users roll off the platform as a result of cash.

On a more towards the backend of the pandemic and.

And so we saw that recover in Q2, which is nice and we expect that to continue through Q3 and Q4.

In addition to those items.

Nice ARPA pick up.

And that's another area of our revenue model, where we would expect a 5% sustainable revenue per user growth year on year on we grew 7% during the quarter. So part of the benefit of our model is there are several different revenue levers that we can.

<unk> leverage and utilize and were seeing were firing on most of those during this quarter.

Got it great Shouldnt momentum. Thanks, a lot guys I appreciate it.

Yes.

And we have our next question from Scott <unk> with Barclays.

Okay, Great Hey, Thanks for taking my questions here guys.

Hey, Brian maybe I'll start with you just just off the back of that last question.

740000 net.

Increase in registered users it was great to see.

Maybe I wonder how you think about the cadence of those customer adds maybe over the next couple of quarters and you touched on on the <unk>, a little bit, but maybe how do you think about the the.

ARPA that those kind of new users are coming in at.

For the back half of this year does that makes sense.

That's a great question.

So what youre going to see is a.

<unk> end user implementations in Q3, and Q4 will be modestly down from Q3, so on the back half of the year implementation should be in that 800000 to 900000 range.

In terms of organic user growth, we would expect to continue for our clients to continue to grow on a 15% to 17% level.

In the back half of the year year on year. So.

<unk> nice user growth for the full year.

We should exit the year somewhere between <unk>.

11, 6 to 12 million lie.

Live users on the platform, which is a bit ahead of our expectations and we're excited about that.

As it relates to <unk>.

New users are coming on at a much higher level than our overall company average.

And so in Q3 Q4, we expect the <unk> related to implementations to be in that $15 per year.

Per user per year.

What's driving that is our sales force is becoming more and more.

More competent at selling more products on the initial order, we're seeing that average somewhere between $14.15.16 products and in some cases up to 20 products and above on the initial order when the company average is around 10, so lots of traction within our sales force when they are.

Ending a new logo on selling more products as the company has more products to offer.

Got it that makes a ton of sense, maybe for my follow up for you Mike or Steve.

A lot of a lot of focus here on on the business banking capabilities. It sounds like to your point, Steve that GAAP list.

Decreasing.

Obviously, a nice part of the pipeline from here as well I'm wondering if you could touch a little bit about.

On the competitive win rates there how those have trended how do you feel about where you stand versus maybe some more entrenched.

Competitors in this space.

Yes, I think it's hard for us to give great numbers on this because we'll look at a particular quarter, we like to look at trailing 12 months, which is probably the best way to kind of normalize it I would say that.

I would be happy for our win rate to stay on what it was a year ago because of how many more deals of Arabian Nevada too. So we would find do they have the great win rate, but how you only get you only invited to the party 4 times. Subsequent that you won wants a 25 per se, but yeah you.

<unk> hundred 95 parties.

So for US I think what we're really seeing the most encouraging is were seeing.

We're seeing us being invited to a lot more of those that means that the consultants are saying as to rfps that we're getting a natural references from our existing clients and so our name is just kind of getting out there on marketing engine is getting our name out there. So we've seen a substantial pickup in the number of bank deals, where we're invited in and I would say that our win rate is.

It's holding steady so.

Take that for what it's worth.

Yes, and the other thing I would add about investments on our business banking is increasingly.

Credit Union clients in the credit Union opportunity business banking is becoming more important to them.

Opening up close to half of our live users are using some aspect of our business banking platform. Our business users on the platform form are up almost 60% over the prior year. So it's not just benefiting the bank.

Segment of our market. It's also impacting our gross on the credit Union side.

I was just confirming that.

Got it that's very helpful. Thank you.

We have our next question from Bob Napoli with William Blair.

On a machine.

Thank you good afternoon, Hey, Mike, Brian and Bob.

Hi.

Nice quarter nice trends.

The progression on the gross margin has been pretty.

On a pretty dramatic and I know, Brian you went through some of that but.

Yes, I mean, there are certainly ahead of the expectations that we had coming into this year, whether your expectations for that the trends in that gross margin on the back half of the year and you are still.

And then maybe your expectations.

Maybe 2022, and 2023 just longer term, but the cadence has that changed.

Yeah. So the cadence for 2022 and 2023 Hasnt changed at this point. So we will still be targeting 200 to 300 basis points of margin expansion in those years and as we mentioned as a part of.

The IPO roadshow and even on the Q1 call. We don't think were capped at 65%.

But we need to reach 65% before we revise that outward.

Our view of where we could go revenue mix certainly has a large impact on where ultimately we can go because our largest cost of sale component is the pass through costs related to us reselling.

Third party solutions and IP through our platform.

And Thats, a big part of our story is the ability to deliver innovation much more quickly than the competition.

Whether it's through organic development M&A activity or adding third party partners. So.

And understanding of where that third party mix goes in the future can certainly impact. The next 2 big items are hosting and implementation cost and we're seeing an incredible amount of efficiency within those groups I mean, our it team is doing.

You really a fabulous job in driving down our cost per user for hosting.

And then also keep in mind since we're 100% in AWS, which we think is an advantage for us from a go to market perspective. It also includes the cost of renting cap ex so we have capex components and our cost of sales that many of our competitors or peer comps do not have.

And we're still achieving nice gross margin leverage and then finally on the implementation front I can't say enough for our implementation team.

Through the pandemic I think they've learned some lessons along the way they've learned how to be more efficient how we.

We can provide the same level of service and client satisfaction and do that from a remote setting which means less travel and less cost associated with the implementation. So.

That is a good fact, that's come out of what we've learned over the last 12 months and is now benefiting our gross margin for the back half of the year I don't want to get over my ski tips and say, we're going to repeat Q2, we're going to.

Advanced beyond Q2, I think for the full year, you'll see us have.

3 to 400 basis points of gross margin expansion in large part due to the onetime revenue event that landed in Q4 of 2020 for a client termination that brought a lot of gross margin in that quarter, but absent that we would be up significantly more than 3 to 400 basis point.

In 2021.

Thank you and then.

Now you seem to have had a lot of success with HCA alert you have a lot of third party.

Partners, and Thats, where ECH.

It's a third party partner.

From an M&A perspective.

Are you.

Looking at what should we expect to see other <unk> type transactions.

Third party partners.

And what are you most focused on in that regard yes.

Yes, we would love to repeat the ACA alert success on acquisition heard over and over and over if we can we view that the third party.

Revenue channel as a sourcing channel for M&A activity, especially for the <unk> alert or may be slightly larger sized partners that we have.

Areas of focus for US has not changed digital account openings is a very key area for us.

Through security that's another key area of financial Wellness, and then of course, any marketing data and analytic type product.

And quite honestly talent would be something that we would heavily pursue as it relates to M&A activity.

About the only 1 I would add to that is probably in the area of.

Business service banking services for the commercial customers that they have if theyre in payments or other services like that that would be the other place.

Bob did we lose you.

I'm sorry. The line has dropped from Q would you like me to proceed to the next question.

That'd be great that'd be great, Bob Bob will be back, we know Bob pretty well.

Thank you. Our next question is from Josh Beck with Keybanc.

Thanks.

Thank you so much for taking the question team.

I wanted to go back to some of your earlier comments, Mike just about the pace of change and acceleration that youre seeing within the industry. So I'm curious maybe.

What is it really seems like it's it's obviously always been there there's been a drumbeat, but it really feels like things are structurally deepening on on some of these adoption curves. So I'm just curious maybe what's driving that.

You mentioned buy now pay later, so I was just kind of curious with the news and everything how the banks are approaching that space.

Well for sure.

We've talked about before Josh.

This whole idea of the digital transformation of financial services is not sneaking up on the digitally oriented bank.

Our bankers and credit Union leaders of today I mean, they are hyper aware of it are hyper aware that virtually every product.

It is being presented in the market space as a product offering that they could render themselves if they chose to if it's pricing.

Availability access.

Whatever element of it is because it's not the actually the user experience itself is interesting, but a lot of it is the proposition that's underneath it and so I think the banks think of it as yes. Its part now is more of an enabler and a differentiator possibility of interviews only a threat.

Steven in Us room, boardrooms, now more often than ever on banks and credit unions on what's going on in digital why shouldn't matter and so that sense of awareness and appreciation and recognition converted the action is what we're feeling on the big with our with our consumer.

On the consumer side or the on the business side. So.

We think of the acceleration is really just more of the possibilities seem to be more reachable more doable more achievable. So the field is leveling on the competencies. It takes to do it with partners like us and so thats I think creating a big chunk of the acceleration we are feeling in a good idea that it was in the <unk>.

Place for us as a let's call it a direct to consumer direct business offering immediately opens beehives of a.

Financial institution leader in the digital world, So as that product or service that we just saw a director.

Customers a product we could do ourselves with a partner like al can we could bring it to us.

And crypto as a good example, with our big announcements here recently films and other plays credit scoring well on topics like this that you could've seen where in those ways. We're now get integrated into the value prop of.

A financial institution in their holistic view and they can differentiate on the aggregate. So thats, we think its just the.

Weakening of something that they had seen already on their corners from other industries not to have happened and the tools are more accessible and more doable than before you even know if you'd add anything to that I thought that that was very well stated.

Okay, well, great well thanks for the.

The color Thats Super helpful.

Sure. All of you are consumers of digital banking products for you on lives and so you can see this happening already probably with if any of the.

Forward leaning on financial institutions, moving or they used to have that now I haven't.

Net that field leveling and differentiation on the new way is just on the.

Just go away and I think that's picking up.

Well that's.

Good to hear.

And maybe just 1 follow up for Brian just looking at the gross and the first half it seems like it's high <unk>.

Really encouraging moving.

On the indicator and then just looking at the revenue growth in the in the back half of it's obviously you take a step down from that so maybe just help us.

Bridge, what are some of the big moving parts, there and any areas of conservatism that we should be thinking about.

Yes, I think the.

<unk>.

1 of the items just to point back to again was in the back half of 2020, we had a large termination.

Termination fee that impacted those results and so on a full year basis, we're looking at revenue growth of 33%.

And that's before you would adjust for that from a run rate perspective to truly understand the momentum of the business.

We have good visibility based on our backlog of users that are being implemented.

We will have as I mentioned earlier close to 800 to 900000 users that will implement predominantly in Q3 rolling into Q4, and we will exit the year a bit higher on live users on what were expected, which will provide us good visibility into 2021 or the other.

Unknown variable is really the pace at which our client sales team closes add on business for.

For the first half of this year, our client sales team is up quite a bit over the first half of last year in terms of new sales sold there.

They're actually the mix of.

New sales or TCP within.

That's attributed to client sales is actually picking up and increasing so to the extent that momentum continues.

These are products that we sell that goes into backlog when we implement much quicker it's more.

Around 60 to 75 days versus a 9 to 12 month implementation cycle. So so that's.

An encouraging trend and 1 that continues in the back half also does up nicely for 2022.

Excellent thanks team.

Okay.

I'm, sorry, adjusted OIBDA I'd add to that Josh.

So on the back half of the year as we've been talking about on the on the sales pipeline. This was kind of like in every business. There is the story of the pandemic and its implications on the business was almost different for every 1 of those.

You've kind of heard our description of that as it relates to our existing customers and their awareness.

Emphasis on digital to slowdown and speed up of initiatives related to their existing platform or new ones shifting and slowing down and then picking back up and so this back half of the year to us subject to the Delta. The variance discussions we've had is going to be a key part of what that trajectory looks like on how the how this next couple of quarters as we unwind.

On the or whatever is next under the pandemic.

We're variances mix, so that's going to be the next component of kind of that element of next year on the year after that it's.

It's hard to predict right now.

I have a crystal ball on how the delta bearings going to play out I don't see it yet so.

That's helpful context, Thanks, Mike.

Thank you. Our next question is from May on Kenton with need him.

Thank you good evening most of my questions have been answered, but I did have 1 on the land and expand I think Brian you mentioned, the 26 product portfolio that you have today we're on.

Are you today in terms of penetration in terms of the products across your customer base on what is sort of a roadmap to get to that 26 magic number over time Im sure Youll see more products over time, but just looking at that 26 number where are we today in terms of penetration.

Yes, so today on average we have.

Tin products installed with each client.

What we're seeing is as I mentioned, our new sales team is actually generating more products than the 10 on average with new logos that we're landing.

Anywhere from 12 to in some cases in the Twenty's and it's averaging out around 15 or so so that's encouraging for us.

I think equally as encouraging if you just look at our products and the penetration into the base comparing where we are at 632021 to the prior year.

Every product except for 1 has increased and penetration and that's really the combined effort of the the new sales team or new logo team.

With the success that we're seeing on the clients sell side. So I can't give you the exact cadence of when we're going to be fully penetrated 26, I think the answer to that some never because we're going to continue to add product and continue to innovate and we will always be chasing that.

But I can assure you from the CFO seat in the finance side.

I will not allow the sales force to tell me that we can't be 100% penetrated because we can always drive more sales I have Stephen here. He squirms a little bit is on as I'm, saying that I'm kidding, but but it truly is a land and expand story and and we're seeing a lot of success from the client sales team.

And I think renewals I mean that is another area of focus for us we've renewed 6% of our digital user base in the first half of this year, we have more clients that will be renewing in the back half and we all know that when a renewal is approaching that is a great time.

Try to sell more product in and just refresh the value prop and the benefits of our products as you have that close relationship with the client through the renewal process. I mean, we maintain a very close relationship with our clients, but it obviously gets much more closer as they are approaching the renewal because they are signing up for another 5 to 7 years.

With us and so in some respects, we're selling the value and the innovation that the company can bring to the financial institution.

That's very helpful perspective, just a very quick follow up.

Given the success in corporate banking and maybe as you move upmarket how critical is it to leverage the Si partners is that something that's on the table.

We started out with when you say the Fi partners.

You said <unk> Si partners, sorry, right now theres been templates of other firms that have tried to use <unk>.

<unk>, maybe on unsuccessfully used on Si partners, what we have found for us and for kind of our position given that our platform move so quickly.

<unk> releases, a year of major releases frequently that it's almost impossible to keep.

Third party up to speed on what's the latest version of the latest implementation and expectations. So we've decided that at least to this point that is.

Implementation of our solution is something that is part of our core competencies that we have to do exceptionally well you heard a little bit about that in the case study and so we've kind of left that too.

Others, and maybe future consideration, but it's not anywhere near on our list because we just feel like it's essential that our clients are counting on our unique expertise and knowledge of the last version of the product to make that implementation work and so we're not going down that path.

Using some of our partners for helping us accelerate other elements of this but doing that part of it is from 1 of them and financially we're still seeing nice margin expansion even across our implementation teams.

The implementation process.

From our perspective is not a gating item would be typically a gating item in the implementation is when is the incumbent provider contract and in managing towards that.

Then also as you are moving a bit into the smaller <unk>.

The component of the market segment of the market that we address.

They don't have as much.

Technology.

On personnel on their side. So then.

That can be a bit of a gating items.

We worked very closely with them to ensure successful experience a successful launch of the platform, but we're not seeing a disadvantage in the financial model and the client experience or the speed at which we're growing our revenue by not bringing in a third party partner.

Right. Thank you so much I appreciate the color.

Good question.

Thank you.

Have a follow up from Bob Napoli. Please go ahead Sir.

Feedback so we would hopefully.

I'd imagine you gave a great answer to my question looks like that kicked off somehow.

Yes.

I'll get that from the transcript.

I know that I don't think.

Just the last quarter, you had given a metric on.

The PCB growth from cross sales versus new logos I was wondering if.

Hey, you could tell us how many institutions.

You won in the second quarter and associated users and then.

Beer revenue PCB growth how much of it was from cross sell versus new logos.

Yes, so for.

The percent of ourselves in the first half of this year compared to first half of the prior year.

We're approaching.

North of 30% that's being attributed to our.

Sales team and so that was a 20% number 12 months ago. So we're seeing some nice traction. There also just kind of state of the first half of the year. We closed 9 new logos in 2021 that compares to 9 new logos in 2020.

Net every year is going to have a story to the year our story to the quarter and what we have found is in 2020, we had.

Several very large financial institutions that we had the benefit of selling to in closing and now we're benefiting from that in our implementation cycle. The story of the first half of 2021 has been more medium to the lower end in terms of size.

In the.

On the market and the sales that we've closed now when we look at the pipeline and we're looking at deals that are expected to close in the back half of the year there are some barry.

Uniquely large opportunities that we feel.

Have a great chance of going our way so.

I would look at our sales.

For the first half of 2021.

Can you kind of wait and see.

Let's see what happens to back half of the year.

We're we're we're not.

Pleased with the first half of the year, it's a little bit out of our control, but its deal velocity. So if you think about the pandemic as we exited Q1 and we were in Q2, we actually saw opportunities decline.

Stephen spoke to this a bit in his prepared remarks, but and then as we as we went through Q3 and Q4, we saw activity coming back in Q4 was a very strong quarter for us and.

What you see in the first half of this year as those opportunities.

The dip in opportunities we didn't have as much deal velocity in the first half of the year Q4 of 2020 was really driven by deals that were in the pipeline expected to close pre pandemic and I think that's a pretty important point.

We saw that again the opportunities increasing Q3 Q4 that carried over into Q1 of 2021.

Which has given us confidence in the back half of 2021.

Mike's earlier comment the Delta variant and is that going to kick us into yet another kind of wait and see type of position on the end market and end, making decisions. We don't know, but what were seeing in our pipeline and what we're seeing from our sales force is that.

Not the case at this point in time.

And thank you.

<unk> concludes our question and answer session.

We thank you all for joining US today. This concludes our conference. Thank you for your participation you may now disconnect.

Okay.

[music].

Yes.

Okay.

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Okay.

On that.

Yes.

Okay.

[music].

Welcome to the second quarter of 2021, Alchemy Technologies' financial results Conference call.

My name is Vanessa and I will be your operator for today's call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer back then.

During the question and answer a second if you have a question. Please press Star then 1 on your Touchtone phone.

Please note that this conference is being recorded.

I will now turn the call over to your host Rhett Butler, Vice President Investor Relations.

Thank you Vanessa good afternoon, and welcome to Alkermes earnings call for the second quarter ended June 30th 2021 with me on on today's call are Mike Hansen, Our Chief Executive Officer, Steven built Hannon Alkermes, co founder and Chief strategy, and sales officer, and Bryan Hill our.

<unk> Chief Financial Officer during the course of today's conference call. We may make forward looking statements, including statements regarding trends strategies and 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.

Related to our operating and financial performance.

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 materially from those reflected in the forward looking statements.

Forward looking statements made during the call are being made as of today August 4th 2021 day.

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 basis, because we believe these measures to be useful to investors in the understanding of our financial results.

A reconciliation of each comparable GAAP metrics 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 all for joining us on the call and I'll turn it over to Mike.

Thank you Rob and thank you to everyone joining us today for this on our second earnings call.

Since we were here in early May with team of over 640, ALCHEMIST and our partners have continued to be hard at work.

Operating against our mission and we are very excited as we share in Europe.

Today, well, Brian will get more into the details momentarily, whereas you may have seen on the press release a bit ago financial performance. During the second quarter was again solid across all of our metrics.

And now about 10 months and we continue to be on track with our integration and synergy objectives with our Hgh alert acquisition with some news to share later in the call.

So if we went to our end market the community and regional financial institutions in the U S. We think the digital transformation on financial services is continuing to accelerate.

In our view a number of factors contribute to this acceleration.

First we continue to see significant market investments in fin Tech and financial services offerings in companies.

These investments in the form of Ipos, and private equity and venture capital transactions.

Airpower in existing and new players to create or scale targeted digital financial products, and even offerings, including crypto currency.

For consumers and businesses alike.

Frequent examples of these investments, resulting in M&A activity on the space as well.

Further the big Tech companies on major retailers also remain active expanding their digital capabilities and the financial services space from digitally provision credit cards and prepaid cards to check checking accounts to buy now pay later offers and yes, even crypto and of course, the Mega banks are continuing to up the Andy on their own right.

1 of them spending approximately 11 billion on technology annually.

This competitive landscape of financial services requires the financial institution squarely on alkermes addressable market to move at a speed and certainty to identify and seize their strategic opportunities enabled by the technology and go on.

Currently identify and respond to the strategic trips from competitors that are often greater than resorts have often greater resources.

Is this dynamic landscape of volume market that continues to propel market demand for alchemy digital platform on that continues to advance its speed and allows our clients to innovate quickly and compete effectively against others with many times their scale.

We can either continue to believe the battle for relevance and success in this digitally transforming market for the community on a regional bank or credit Union has never been more important.

There's a bit more color on this transformation in June we solicited feedback from 150 leaders and regional and community financial institutions that have influence over their digital banking decisions..2 thirds of these respondents were senior executives within their institutions.

When I asked to identify their institutions greatest risk over the next 18 months.

Risk table changing technology landscape was cited more often than any other risk listed including the risks of interest rate environment, cyber threats and uncertain regulatory environment.

We believe that the digitally focused community and regional financial institutions aware of this risk and armed with the right tools to complement their own unique capabilities have thrived and can continue to thrive in this digital world.

Can you continue to do so they will increasingly need innovation and extensible platforms like alchemy that can deliver a digital innovation at speed and scale to power their strategies over the long term.

Kudos to our clients and their teams for what they are doing and how they've done it.

And their success is equally evident in their business results with year over your asset and deposit growth well above the industry average on digital user growth of our clients' exceeding 17%.

To give you an idea of how our digital banking platform helps power the results on the financial institution I'll take a couple of minutes to outline the results of a client through a specific case study.

Case study is from a strong west coast financial institution, and a very competitive market with over 100000 digital users on over $2 billion in assets.

We completed the implementation and launch them during the second quarter of last year with 14 products.

Financials Tuesday on specific strategic need they're looking to alchemy to help with naturally the main focuses where around improving their end user experience their end user sentiment or satisfaction for their app lets say appstore ratings. The overall end user satisfaction of the digital channel.

NPS scores there digital user growth on their mobile banking penetration I'll touch a bit on each of those free.

First after researching top tier financial institutions on finding their user sentiment average $4.8 our client set a stretch goal of achieving a 4.9 rating prior.

Prior to converting to the alchemy platform. They had on eye iOS rating of about 2.9, and Google rating of about $4.3 per weighted average of about 3 point out.

Post conversion to alchemy, they're operating skyrocket into an iOS rating of 4.9 with nearly 13000 reviews in a Google rating of 4.9 with nearly 1800 reviews for a weighted average of about 4.9 stars. This equates to a 63% increase in end user satisfaction.

Second after the diligence with other financial institutions, the client determined that most digital banking platform conversions, resulting an NPS score drop for the digital channel of at least 10 points with a recovery taking at least a year.

Together, we executed a plan to deal with those realities around the big change event and together with their help of the alchemy platform. They fully recover to their previous NPS score, although very lofty 85, 6 and 6 months and within a year. They were beating the all lofty scores. This performance ranked them up 6 overall versus.

The large survey peer group our survey firms peer data.

Third our client obviously wanted to grow their digital engagement with their new and existing customers and members.

And to grow their digital users in that way on prior to the ultimate platform conversions, they experienced about 11% annualized user growth and post conversion there annualized user growth results and expectations have grown significantly to around 18%.

What are you excited about this this is not only the strong user growth with the fact that that growth was relatively consistent between the new and existing customers and members.

This translates to tremendous success engaging these new customer members, but also significant results in penetrating the existing base.

Lastly, given the importance of the digital channel mobile banking penetration of engagement were incredibly important factors for our client.

Prior to the alchemy platform conversion their mobile conversion was 50% against an average of about 54 per cent.

Post conversion mobile penetration was 66% this incredible success.

A testament to our clients' team capabilities and strategies combined with the power of the alchemy platform.

So this client success stories like this that power us here at alchemy and form the bedrock of our innovation motion ensuring our solutions.

Deliver the results for our clients digital strategies today and tomorrow.

Results for these this innovation motion are at the center of each of our 4 key growth drivers discussed on our last call.

Brian will briefly highlight these drivers again in his remarks following Stephens in a few moments.

Next let me turn it over to Stephen go hand, and to update you on our innovation and go to market activities I'll be back at the end.

The prepared remarks with a few comments before we go to Q&A with that I'll turn it over to you Steven.

Thanks, Mike.

As I touched on last quarter's call, while our engineering teams.

Ah patients across the platform our primary focus areas, our business banking functionality user experience enhancements with an emphasis on mobile extensibility and our data solutions during the quarter. Our latest software releases that we delivered to all clients contain new functionality in line with that focus on I'll briefly discuss each area.

Additionally, he kind of analysis functionality increases billing flexibility for individual businesses, a key feature needed to serve service larger businesses. We continue to heavily invest in our small business and commercial solutions and as a result of these efforts. We're pleased to have signed 2 additional $1 billion plus commercial banks in July.

Cardinal accounts are instant account verification product reduces the friction and abandonment rate during the account verification process and also helps to mitigate fraud through account holder name matching. This is another great example, on delivering a positive user experience while at the same time, helping our clients mitigate fraud.

Finally, we continue to make investments in data and our data set continues to grow with a codified anonymised day to warehouse that is collected and claims now over 5 billion transactions across more than 150 financial institutions. We believe alchemy is 1 of the deepest on Rich's transaction on account detailed datasets in the country combine this data along with user interaction and behavior data we are.

<unk> this data into actionable insights through products like our new executive dashboard to support our financial institution's digital gross strategies, the new executive dashboard provides the institutions with their historical performance over time across turnkey digital banking kpis that explore adoption engagement and conversion what's more we provide the benchmark comparison of the.

<unk> individual performance against that of its peers, there's a deep level of insight allows us to formulate gross strategies with our financial institutions based on kpis across the digital funnel.

The adoption engagement where conversion.

In conclusion, we continue to innovate with speed.

Across the strategic priorities that we believe will differentiate our clients on alchemy by 1 delivering a superior user experience for both retail and business users that taps into deep extensibility capabilities into equipping our financial institutions with insights across a comprehensive data set of user transactions and institutional day digital banking benchmarks our innovation.

<unk> continues to be central and offering our clients, a functional and technical advantage against existing and emerging competitors.

Next I'd like to discuss sales momentum on our overall go to market engine as I mentioned on our Q1 earnings call. The arrival of our new CMO Allison's Sarah earlier, this year and investments on our digital marketing engine are paying off while some in person meetings and conferences are starting to come back they're not at the same levels pre Covid. This has increased our reliance on the digital channel for <unk>.

Presenting well over 20% of the largest pipeline in our history as I stated a moment ago, we signed several banks during July specifically, we signed 2 new $1 billion plus banks to our digital banking platform and a top 30 bank with over 150 billion in assets to our ACI to alert solution. Our first half 'twenty 1 sales results combined with the pipeline in July new wins.

It gives me confidence in our go to market traction.

I'd like to provide a few more comments regarding the success of the <unk> acquisition.

<unk> solutions team continues to show the potential we identified pre acquisition during the quarter, we had our fourth patent issued and since the acquisition on October 20, we've achieved new sales of 48 banks and credit unions. In addition sales of additional products have been positive increasing penetration into 4 large clients ranging from 15 to almost $50 billion in assets and innovate.

Prospective new functionality is expected to be released in the near term around deeper integration with our digital banking platform on the horizon is perhaps the most exciting innovation in near term on multi payment risk processing engine expected sometime during 2022 when delivered this would make alchemy. The first digital banking provider to offer not only electronic payment origination capabilities.

But into end processing of payments originated in digital banking and.

Thanks, Steven and good afternoon, everyone.

Second quarter financial results were strong across the board, but let me start with revenue we enjoy a highly predictable subscription based revenue model possessing several growth drivers first our client success utilizing the alchemy platform to fuel their digital strategies and grow their digital communities, we refer to this as organic.

User growth.

Second on expanding the solutions, we offer and our clients adoption of our solutions through cross sell activity third new clients joining the al can be digital banking platform through new logo sales, which can take approximately 12 months to materialize into revenue and typically timed with the contractual term of the incumbent digital banking.

<unk> and finally M&A activity.

We continue to evaluate the M&A landscape as a way to drive organic revenue growth over the long term add new features and functionality and drive compelling risk adjusted returns for our shareholders overall.

Our topline performance in terms of total revenue growth subscription revenue growth the subscription contribution to total revenue and <unk> growth along with the factors affecting a or our total revenue and subscription revenue both grew 38% for the second quarter compared to last year, our subscription revenue.

<unk> represented 94% of our total revenue.

Annual recurring revenue or <unk>.

<unk> of $144.7 million achieved strong year over year growth of 38%.

1 of the leading providers of digital banking as it relates to total digital user growth.

Digital user growth has been driven by 2 areas over the last 12 months first we have implemented 24 financial institutions supporting 1 million digital users and second our clients have increased their digital user adoption by $1.4 million users representing organic user growth of 17%.

<unk> revs.

Revenue per user as the final area driving our strong performance during the last 12 months, we've expanded our RP you by 7% and ended the quarter at $13.48 per user per year.

This compares to a market opportunity a blended average of $38 per digital user based on the 26 products we offer today RP.

<unk> expansion has been derived from 2 areas first we are adding new <unk> the platform possessing an RP U 26% higher than our overall company average from the prior year argued.

Free new several more as we exit the year renewal activity will continue to be a strategic focus adding to our sales results.

Per year.

<unk> towards achieving this objective is candidly a bit ahead of our stated objective for the second quarter of 2021, non-GAAP gross margin was 57.5% an expansion of over 680 basis points compared to the same period last year expansion was driven primarily by revenue scale.

Greater utilization and cost efficiencies in our client implementation client support and classes success functions and improve cost efficiency with our third party revenue relationships moving.

The operating expense.

Our goal is to balance investment opportunities with revenue growth yet maintain a good line of sight towards profitability or adjusted EBITDA positive, we have a large market opportunity to address and recognize gaining market share at the cost of near term profitability is to correct tradeoff for where we are in our lifecycle.

We continue to expect to reach adjusted EBITDA positive on a run rate basis. During 2023. This is highly dependent upon our investment trajectory revenue growth and M&A activity.

Your year period.

By higher employee related costs from head count increases in our sales and marketing teams, we achieved leverage primarily through revenue scale and lower than expected costs from travel as well as industry conferences and trade shows.

All resulting from the continued impact of the COVID-19 pandemic.

Sales and marketing expenses will increase during the third quarter of 2021, as we incur costs associated with our annual client conference. We are excited to host our hybrid event and look forward to our clients partners and investors who are able to attend in person. However, the event will be equally as informative to those who choose to attend remotely.

Total non-GAAP general and administrative expense was $10.6 million up 60% compared to the prior period G&A represented 29% of revenue, which is nearly 400 basis points of margin contraction.

Primary driver of margin contraction was the increased cost necessary now that we're a public company, including higher business insurance, and adding new accounting Investor relations legal and human resource personnel.

Go to market activities as a result of the revenue and profit over performance.

We continue to be laser focused on the most balance path to revenue growth and long term profitability.

Moving on to cash we had over $338 million in cash on balance sheet as of June 32021.

Now turning to guidance for the third quarter ending September 32021, we expect revenue in the range of 38 to 39 million and an adjusted EBITDA loss of $7.5 million to 6 and a half million dollars.

For the full year ending December 31, 2021, we expect revenue in the range of $148 million to $151 million in it.

And in.

Adjusted EBITDA loss of 24, and a half to 2 and a half million with respect to adjusted EBITDA levels on the back half of the year compared to the second quarter.

I will now turn the call back to Mike for a few closing comments before we start the questions and answers segment of the call.

Thank you, Brian and thank you to the nurse jobs gentlemen.

I'll take a couple of seconds to recap a few key points on our first full quarter as a public company.

Elevation on sales results posted in Q2 for the strategic area of our business. Finally, our efforts are also reflected in our solid financial results in 2021 outlook as Brian mentioned total revenue.

Revenue and subscription revenue both grew 38% for the second quarter compared to the prior year digital users grew 29% over the same timeframe ending at over $10.7 million.

And we're running ahead of our stated non-GAAP gross margin objectives, and we are finally, we increased our outlook for the third quarter on the full year.

I reflect on this first quarter as a public company I'm proud of our start and energized by this leadership teams and all alchemists commitment to our vision our mission and our result simple.

We fully intend to be the best digital banking platform of choice for regional community financial institutions in the U S. Doing so requires a passion competence for digital banking that is relentless and enduring is to change our clients each and every day.

And while we're still while we're still new to the public market, we are stronger than ever and our mission hasn't wavered in our now 12 years as a company we remain deeply focused on executing on fulfilling our purpose as ever to the benefits of our clients our partners. Our users investors an ALCHEMIST now I'd like to open it up for Q&A I will turn it over to the operator.

Sure.

And thank you we will now begin our question and answer session. If you have a question. Please press Star then 1 on your Touchtone phone.

Do you wish to be removed from the queue. Please press the pound sign or the husky and if youre using a speakerphone. Please pick up the handset before pressing the numbers once again with your question. Please press Star then 1 after the Q.

And we have our first question from Matt <unk> with JMP Securities. Please go ahead.

Oh, great. Thank you and congratulations on the second quarter as a public company.

I would love it if you could just because it.

Just because it's on everyone's mind now with with Delta.

A delta so can you just remind us of the impact of sort of the first wave of the pandemic on your business and then what it did to deal activity.

And how youre seeing that play out today.

Yes.

On the call thanks for being here with US good question by the way.

<unk>.

The world did to get squared away on that we felt.

As we went into that stage. There was this kind of a slowdown of new business opportunities commencing like on the forms of Rfps and new activity starting there.

But our launches on our implementation activities just continued with a few adjusting slightly for things going on in their operations. We stayed pretty much on track, we held to our financial plan on sales and revenues.

All elements of our financial plan for 2020 and pretty much nailed every 1 of them throughout that year.

So we did see a kind of a small uptick in the user accounts not a massive adjustment and user adoption by our client base.

And our clients I think after hunkering down.

Ready for some of the credit and other considerations and concerns around their employees that they were dealing with I think settled into a pretty good steady state and so we've been marching on that path and have started to see I'd say coming out of this quarter, we're starting to feel some of the energy back in the in May feel some at the end of the first quarter.

Energy coming back into new initiatives, and new projects and getting going a little bit for the new initiatives and our client sales has kind of been pretty strong. During this period as our clients who are already on the platform. We're looking for new ideas and new things that they could implement so that's kind of how I'd summarize it.

Steven O'brien, who want to add to past good question, yes.

I think he.

He was kind of asking about that as kind of a delta variance. Some of this new stuff come on line up as well.

Yes, I think that will be definitely see us as Mike said as activity has absolutely picked back up the biggest dip with kind of Q2 and Q3 of last year as far as net new deal opportunity creation RFP creation I think the only thing that's not kind of fully back yet or kind of all the kind of conferences and trade shows we're seeing some of them still have to laid out till next.

Other ones are doing versions of them this year or maybe certain versions with mandatory vaccinations and things like that so that part isn't quite back to normal but in terms of overall deal flow RFP generation and so forth.

That's what we're seeing is that that's back to pre pandemic levels.

Great. Thank you for that and I'm glad youre, making the effort to make your conference hybrid.

[laughter], Yeah, I think we started their pad were trying to decide how far down the hybrid paths, we're going to do actually.

It's still moving around at this point I would also say that number of our team had been out and about monitoring.

Monitoring and with our clients.

With their conditions in their respective facilities and things are tightening down again in our client community for what theyre going to be doing I think they're comfortable with supporting it but it has sure having a kind of a day by day impact on the reactions.

The actions of our clients in our operation.

Alright, Thank you very much that perspective sure.

Thank you we have our next question from Sterling Auty with J P. Morgan.

Yeah. Thanks, Hi, guys. So in terms of the.

Incremental investment you are talking about.

The upside on the go to market piece, specifically I am curious how much of that is going to go into kind of quota carrying head count versus some marketing and top of funnel lead generation programs, just help us understand where youre, putting that incremental amount to work and maybe quantify how much that is.

But on your touch that 1 little Sterling.

Yeah. Thanks, Thanks for the question good talking to you again.

As far as where we're allocating funds for the go to market it's predominantly around.

Marketing activities sales training activities and lead generation, So I would characterize it more as top of the funnel for go to market. We're also investing further in our client sales team.

Likely to add a couple of our quota carrying reps there. We've recently and we may be announced this last quarter.

Because post quarter end, we added.

Ice president level leader within that organization.

On a woman with lots of experience in the digital banking community. So really it's just continuing on a lot of the success that we have and furthering on lead generation from sources now that we're more apps on or at least lower activity from in person events like trade shows.

Conferences.

Great and if I could sneak 1 follow up and I'm curious you know.

You kind of teased us with the HTH enhancement for 2022, how should we think about the monetization around that and what kind of revenue opportunity that might lead to.

Well I'll take the revenue opportunity.

It is.

In flight.

And so it's more of a road map items. So in terms of revenue impact in 2022, it would be very little in terms of sales activity.

You know the investment community and others would understand that we're advancing the product and the platform. It wasn't as though we are acquiring something we wanted to hold static because it's a very strong team with great knowledge around what they do in fraud mitigation and we feel it's important to provide insight into how we intend to take the asset.

It.

Understood. Thank you.

And thank you. Our next question comes from Andrew Schmidt with Citi.

Hey, guys. Thanks for taking my question here and congrats on a good quarter.

I wanted to ask a question about the <unk>.

Thanks Syed.

I know you mentioned key commercial bank win in July I was hoping you could talk a little bit more about the <unk>.

<unk> of those wins and how conversations with banks are evolving generally speaking, particularly as you get more reference clients EBIT, you're more focused on the go to market just curious how the.

Progress on the back end market is evolving.

Yeah, Hi, this is Steve I'll take this 1 so I would say that.

Momentum is building there and you hit on it right here the more references you have the easier it gets to get the next 1 and so I would say that the sales are getting a little easier because obviously, we're winning some we were getting more live we're enhancing a lot of the business banking functionality and features that really have probably been the number 1 reason that wood.

It kept us out of certain accounts.

Right now I think I think I mentioned it earlier, but we've got out of the largest pipeline we've ever had 20% of that are actually bank deals.

That you'll you'll get those things done in time for their launch so I'd say that in all those areas.

It's not to the levels, where we are on the consumer side and obviously on the credit Union space, yet and we don't expect it to get there.

The next year or so, but I would say that the positive signs are there on the momentum is there not only on the pipeline, but also in actual contracted deals.

Got it Super helpful. Thank you for that and then just a quick follow up on the performance in the quarter.

The outperformance.

When does that primarily related.

Organic.

You guys have good visibility going into the quarter, but organic user growth timing of go lives just curious to get any sense for the nature of the revenue outperformance in the quarter. Thanks.

Andrew could you repeat that question.

Sure, but just hoping to get a little more color on the revenue outperformance in the quarter, what the key drivers square whether it was.

What's going on with growth exceeding expectations or timing of go lives or anything like that.

Yes, so a couple of things on a.

From a user perspective.

We grew just over 740000 users during the quarter.

Recovered in the quarter were a couple of things compared to Q1, we mentioned last quarter that implementations were more of a mid year story for 2021, and we absolutely saw that with over 475000 users implemented during the quarter, but maybe equally as important but less impactful.

<unk> was we saw a increase or recovery in the organic user growth of our existing clients that was fairly low or mild in Q1, we saw that recover in Q2, we attributed the Q1.

Modest increase from coming out of the pandemic high user growth and seeing more users roll off the platform as a result of.

Coming more towards the back end of the pandemic.

And so we saw that recover in Q2, which is nice and we expect that to continue through Q3 and Q4.

In addition to those items.

Nice <unk> pick up and that's another area of our revenue model, where we would expect a 5% sustainable revenue per user growth year on year on we grew 7% during the quarter. So part of the net benefit of our model is there are several different revenue levers that we can.

Leverage and utilize and were seeing were firing on most of those during this quarter.

Got it great Shouldnt momentum. Thanks, a lot guys I appreciate it.

And we have our next question from Scott <unk> with Barclays.

Okay, Great Hey, Thanks for taking my questions here guys.

Hey, Brian maybe I'll start with you just just off the back of that last question.

740000 net net.

Increase in registered users it was great to see.

Maybe I wonder how you think about the cadence of those customer adds maybe over the next couple of quarters and you touched on on the <unk>, a little bit, but maybe how do you think about the the RP that those kind of new users are coming in at kind of for the back half of this year does that makes sense.

Now that's a great question.

So what youre going to see is a.

Tech end user implementations in Q3, and Q4 will be modestly down from Q3 on the back half of the year implementation should be in that 800000 to 900000 range.

In terms of organic user growth, we would expect to continue for our clients to continue to grow on a 15% to 17% level.

In the back half of the year year on year. So.

<unk> nice user growth for the full year.

Should exit the year somewhere between.

$11.6 million to $12 million.

<unk> users on the platform, which is a bit ahead of our expectations and we're excited about that.

As it relates to <unk>.

As new users are coming on at a much higher level than our overall company average.

And so in Q3 Q4, we expect the <unk> related to implementations to be in that $15 per day.

Per user per year, what's driving that is our sales force is becoming more.

More competent at selling more products on the initial order, we're seeing that average somewhere between $14.15.16 products and in some cases up to 20 products on above on the initial order when the company average is around 10, so lots of traction within our sales force when theyre low.

Ending a new logo on selling more products of the company has more products to offer.

Got it that makes a ton of sense, maybe for my follow up for you Mike or Steve.

A lot a lot of focus here on on the business banking capabilities. It sounds like to your point, Steve that GAAP list.

Decreasing.

Obviously, a nice part of the pipeline from here as well I'm wondering if you could touch a little bit about.

On the competitive win rates there how those have trended how you feel about where you stand versus maybe some more entrenched.

Competitors in this space.

Okay.

Yeah, I think it's hard for us to give great numbers on this because we'll look at a particular quarter or we like to look at trailing 12 months, which is probably the best way to kind of normalize it I would say that.

I would be happy for our win rate to stay on what it was a year ago because of how many more deals of Arabian Nevada too. So we would find do they had a great win rate, but how you only you only invited to the party for time. Subsequent that you won wants a 25 per se, but yeah. You wanted 95 parties.

So for US I think what we're really seeing the most encouraging is were seeing.

We're seeing us being invited to a lot more of those that means that the consultants are saying as to rfps that we're getting a natural references from our existing clients and so our name is just kind of getting out there on marketing engine is getting our name out there. So we've seen a substantial pickup on the number of bank deals wherein we're invited in and I would say that our win rate is.

It's holding steady so.

Take that for what it's worth.

Yes, and the other.

I would add about investments on our business banking is increasingly our credit union clients in the credit Union opportunity business banking is becoming more important to them.

Segment of our market. It's also impacting our sales on the credit Union side.

Our Cisco for net.

That's very helpful. Thank you.

Yes.

We have our next question from Bob Napoli with William Blair.

Let me see.

Thank you good afternoon, Hey, Mike Brian.

Bob.

Uh huh.

Nice quarter nice trends.

Yes, the progression on the gross margin has been pretty.

Pretty dramatic and I know, Brian you went through some of that but yes. I mean, there are certainly ahead of the expectations that we had coming into this year what are your expectations for that the trends in that gross margin like in the back half of the year and you're still net and then maybe your expectations are.

Maybe in 2022, and 2023 just longer term, but the cadence has that changed.

Yeah. So the cadence for 2022 and 2023 hasn't changed at this point. So we'll still be targeting 200 to 300 basis points of margin expansion in those years and you know as we mentioned as a part of.

On the IPO Road show and even on the Q1 call. We don't think we're capped at 65% but.

But we need to reach 65% before we revise that outward.

Our view of where we could go revenue mix certainly has a large impact on where ultimately we can go because our largest cost of cell component is the pass through costs related to us reselling.

Third party solutions and IP through our platform.

And that's a big part of our story is the ability to deliver innovation much more quickly than the competition.

Whether it's through organic development M&A activity or adding third party partners. So.

On the understanding of where that third party mix goes in the future can certainly impact. The next 2 big items are hosting and implementation cost and we're seeing an incredible amount of efficiency within those groups I mean, our team is doing.

Really a fabulous job in driving down our cost per user for hosting.

And we're still achieving nice gross margin leverage and then finally on the implementation front I can't say enough for our implementation team.

Through the pandemic I think they've learned some lessons along the way they've learned how to be more efficient how we.

We can provide the same level of service and client satisfaction and do that from a remote setting which means less travel and less cost associated with the implementation. So.

That is a good fact, that's come out of what we've learned over the last 12 months and it's now benefiting our gross margin for the back half of the year I don't want to get over my ski tips and say, we're going to repeat Q2, we're going to.

Advanced beyond Q2, I think for the full year, you'll see us have.

3 to 400 basis points of gross margin expansion in large part due to the onetime revenue event that landed in Q4 of 2020 for a client termination.

A lot of gross margin in that quarter, but absent that we would be up significantly more than 3 months to 400 basis points in 2021.

Thank you and then.

Now you seem to have had a lot of success with a C. H alert you have a lot of third party partners and Thats, where it was.

It's a third party partner.

From an M&A perspective.

<unk>.

Looking at what should we expect to see other <unk> type transactions.

Third party partners.

And what are you most focused on in that regard, yes, we would love to repeat the CH alert success on acquisition on over and over and over if we can we view that the third party revenue channel as a sourcing channel for M&A activity, especially for.

The AC H alert or may be slightly larger sized partners that we have areas of focus for us has not changed digital account openings is a very key area for us.

Through security that's another key area of financial Wellness, and then of course any marketing data analytics type product.

And quite honestly talent would be something that we would heavily pursue as it relates to M&A activity.

That's the only 1 I would add to that is probably in the area.

Business service banking services for the commercial customers that they have if theyre in payments or other services like that that would be the other place.

Bob did we lose you.

I'm sorry. Your line has dropped from <unk> would you like me to proceed to the next question.

That'd be great that'd be great Bob will probably back we know Bob pretty well.

Thank you. Our next question is from Josh Beck with Keybanc.

Thanks.

Thank you so much for taking the question team.

Wanted to go back to some of your earlier comments, Mike just about the pace of change and acceleration that youre seeing within the industry. So I'm curious maybe what.

Is it really seems like it's it's obviously always been there there's been a drumbeat, but it really feels like things are structurally deepening on on some of these adoption curves. So I'm just curious maybe what's driving that.

You mentioned buy now pay later, so I was just kind of curious the news and everything how how the banks are approaching that space.

Well for sure.

We've talked about before Josh.

This whole idea of the digital transformation of financial services is not sneaking up on the digitally oriented bank.

Bankers and credit Union leaders of today I mean, they are hyper aware of it are hyper aware that virtually every product that is being presented in the market space as a product offering that they could render themselves what they chose to if it's pricing.

Availability access.

Whatever element of it there is because it's not the actually the user experience itself is interesting, but a lot of it is the proposition that's underneath it and so I think the banks think of it as yes. Its part now is more of an enabler and a differentiator possibility there and it is only a threat so.

Steven Us room, boardrooms, now more often than ever on banks and credit unions on what's going on in digital why shouldn't matter and so that sense of awareness and appreciation and recognition converted the action is what we're feeling on the big space with our.

With our consumer.

On the consumer side or the on the business side.

We think of the acceleration is really just more of the possibilities seem to be more reachable more doable more achievable. So the field is leveling on the competencies. It takes to do it with partners like us and so that's I think creating a big chunk of the acceleration we're feeling in a good idea that.

In the marketplace for us is a let's call it a direct to consumer direct business offering immediately opens the eyes of a.

Financial institution leader in the digital World is those that product or service that we just saw a direct to.

Type of customers a product we could do ourselves of a partner like al can we could bring it to us.

And crypto as a good example, with our big announcement here recently films and other plays credit scoring well on topics like this that you could've seen where in those ways. We're now get integrated into the value prop.

Financial institution in their holistic view and they can differentiate on the aggregate. So thats. We think its just the awakening of something that they'd seen already on their corners from other industries not to have happened and the tools are more accessible and more doable than before.

To add anything going on I thought that that was very well stated.

Okay, well, great well, thanks for the color.

Color that the Super hubs and I'm sure. All of you are consumers of digital banking product for your own lives and so you can see this happening already probably with if any of the flow.

Leaning on our financial institutions move to go on they used to have that now I haven't and that that field leveling and differentiation in a new way is just on the.

Just go away and I think that's picking up.

Well, that's that's very good to hear.

And maybe just 1 follow up for Brian just looking at the gross and the first half it seems like it's the Thai <unk>, that's I think really encouraging.

Indicator and then just looking at the revenue growth in the in the back half of it is obviously, taking a step down from that so maybe just help us.

Bridge, what are some of the big moving parts, there and any areas of conservatism that we should be thinking about.

Yes, I think the.

1 of the items just to point back to again was in the back half of 2020, we had a large termination fee that impacted those results and so on a full year basis, we're looking at revenue growth of 33%.

And that's before you would adjust for that from a run rate perspective to truly understand the momentum of the business.

We had good visibility based on our backlog of users that are being implemented.

We will have as I mentioned earlier close to 800 to 900000 users that will implement predominantly in Q3 rolling into Q4, and we will exit the year a bit higher on live users on what we were expected, which will provide us good visibility into 2021.

Sure.

Unknown variable is really the pace at which our client sales team closes add on business.

For the first half of this year client sales team is up quite a bit over the first half of last year in terms of new sales sold there.

On that or actually the mix of.

New sales or PCB within.

That's attributed to client sales is actually picking up and increasing so to the extent that momentum continues.

Those are products that we sell that goes into backlog and we implement much quicker it's more <unk>.

<unk> 62 to 75 days versus.

A 9 to 12 month implementation cycle. So so that's encouraging.

An encouraging trend and 1 that continues in the back half will set us up nicely for 2022.

Excellent thanks team.

Go ahead Ed.

I'm sorry.

To add to that Josh.

So on the back half of the year as we've been talking about on the on the sales pipeline.

Like in every business. There is the story of the pandemic and its implications on the business is almost different for every 1 of those and you've kind of heard our description of that as it relates to our existing customers and their awareness.

Emphasis on digital the slowdown and speed up of initiatives related to their existing platform or new ones shifting on slowing down and then picking back up and so the back half of the year to us subject to the Delta. The variance discussions we've had is going to be a key part of what that trajectory looks like how the how this next couple of quarters as we unwind.

On the or whatever is next under the pandemic whatever variances next day, that's going to be the next component of kind of that element of next year on the year after that it's.

It's hard to predict right now.

On a crystal ball on how the Delta variant is going to play out we don't see it yet so.

That's helpful context, Thanks, Mike.

Thank you. Our next question is from <unk> Tandon with Needham.

Thank you good evening most of my questions have been answered, but I did have 1 on the land and expand I think Brian you mentioned, the 26th product portfolio that you have today.

Yes, so today on average we have.

10 products installed with each client.

What we're seeing is as I mentioned, our new sales team is actually generating more products than the 10 on average with new logos that we're landing.

Anywhere from 12 to in some cases in the Twenty's and it's averaging out around 15 or so so that's encouraging for us.

I think equally as encouraging if you just look at our products and the penetration into the base comparing where we are at 632021 to the prior year every product except for 1 has increased and penetration and that's really the combined effort of.

The new sales team or new logo team.

With the success that we're seeing on the clients sell side so.

Can't give you the exact cadence of when we're going to be fully penetrated 26, I think the answer to that is never because we're going to continue to add product and continue to innovate and we will always be chasing that.

I can assure you from the CFO seat in the finance side.

We'll not allow the sales force to tell me that we can't be 100% penetrated because we can always drive more sales I have Stephen here. He squirms a little bit is on as I'm, saying that and I'm kidding.

But it truly is a land and expand story and and we're seeing a lot of success from our client sales team and I think renewals I mean that is another area of focus for us we've renewed 6% of our digital user base in the first half of this year, we have more clients.

That will be renewing in the back half and we all know that when a renewal is approaching that is a great time to try to sell more product and and just refresh the value prop and the benefits of our products. As you you don't have that close relationship with the client through the renewal process I mean, we may.

Maintain a very close relationship with our clients, but it obviously gets much more closer as they are approaching the renewal because we're signing up for another 5 to 7 years with us and so in some respects, we're selling the value and the innovation that the company can bring to the financial institution.

That's very helpful perspective, just a very quick follow up given the success in corporate banking and maybe as you move upmarket how critical is it to leverage the Si partners is that something that's on the table.

Let's start on when you say the Fi partners.

You said <unk> Si partners, sorry, right now there is.

Templates of other firms that have tried to use a successfully maybe on unsuccessfully used F&I partners. What we have found for us and for kind of our position given that on our platform moves so quickly.

Thousands of releases a year of major releases frequently then it's almost impossible to keep.

Third party up to speed on what's the latest version of the latest implementation and expectations. So we've decided that at least to this point.

Implementation of our solution is something that is part of our core competencies that we have to do exceptionally well you heard a little bit about that on the case study and so we've kind of left that too.

We're using some of our partners for helping us accelerate other elements of this but doing that part of it isn't 1 of them and financially we're still seeing nice margin expansion even across our implementation teams.

The implementation process from our perspective is not a gating item would be typically a gating item in the implementation is when is the incumbent provider contract in and managing towards that.

And then also as you are moving a bit into the smaller <unk>.

The component on the market segment on the market that we address.

They don't have as much tech.

Technology.

Personnel on their side. So then.

That can be a bit of a gating items.

We worked very closely with them to ensure successful experienced a successful launch of the platform, but we're not seeing a disadvantage on the financial model and the client experience or the speed at which we're growing our revenue by not bringing on a third party partner to <unk>.

Right. Thank you so much I appreciate the color.

2 questions.

Thank you.

A follow up from Bob Napoli. Please go ahead.

Feedback so we were hopeful.

I'd imagine you gave a great answer to my question looks like that kicked off somehow.

Yes.

I'll get that from the transcript.

I know that I don't think.

Just the last quarter, you had given a metric on.

The PCB growth from cross sales versus new logos I was wondering if.

Hey, you could tell us how many institutions.

You won in the second quarter and associated users and then heavier.

Of your revenue PCB growth how much of it was from cross sell versus new logos.

Yes, so for.

The percent of ourselves in the first half of this year compared to first half of the prior year.

We're approaching north of 30% that's being attributed to our client sales team and so that was a 20% number 12 months ago. So we're seeing some nice traction. There also just kind of state of the first half of the year, we closed 9 new logos in 2000.

'twenty 1 that compares to 9 new logos in 2020.

On that every year is going to have a story to the year our story to the quarter and what we have found is in 2020, we had.

Several very large financial institutions that we had the benefit of selling to in closing and now we're benefiting from that and our implementation cycle. The story of the first half of 2021 has been more medium to low.

Sure in terms of size.

In the.

The market and the sales that we've closed now when we look at our pipeline and we're looking at deals that are expected to close in the back half of the year there are some barry.

Uniquely large opportunities that we feel.

Have a great chance of going our way so.

I would look at our sales.

For the first half of 2021 on kind.

Kind of wait and see.

Let's see what happens in the back half of the year.

While we're not pleased with the first half of the year, it's a little bit out of our control, but its deal velocity. So if you think about the pandemic as we exited Q1 and we were in Q2, we actually saw opportunities decline.

And Stephen spoke to this a bit in his prepared remarks, but and then as we as we went through Q3 and Q4, we saw activity coming back in Q4 was a very strong quarter for us and.

What you see in the first half of this year as those on.

Opportunities.

The dip in opportunities we.

Didn't have as much deal velocity in the first half of the year Q4 of 2020 was really driven by deals that were in the pipeline expected to close pre pandemic and I think that's a pretty important point.

We saw that again the opportunities increasing Q3 Q4 that carried over into Q1 of 2021.

Which has given us confidence in the back half of 2021 and 2.

To mikes earlier comment the Delta variant and is that going to kick us into yet another kind of wait and see type of position on the end market and making decisions.

Don't know, but what were seeing in our pipeline on what we're seeing from our sales force is that's not the case at this point in time.

And thank you. This concludes our question and answer session.

We thank you all for joining US today. This concludes our conference. Thank you for your participation you may now disconnect.

Q2 2021 Alkami Technology Inc Earnings Call

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