Q1 2022 Alkami Technology Inc Earnings Call
A reconciliation of comparable GAAP financial measures can be found in our earnings press release and in our quarterly filings with the SEC I'll now turn the call over to Alex. Thank you, Steve and thank you all for joining us today for our first quarter 2022 earnings call.
I am pleased to report that <unk> delivered another quarter of strong performance.
Brian will provide details in a few minutes, but I'd like to share some highlights.
In the first quarter, we grew 35%, which was ahead of our expectations.
We exited the quarter with $12 8 million lives registered users on the alchemy platform, which is up $2 8 million users year over year.
In terms of sales first quarter was solid we.
We had five new logos and for renewals of existing clients and our sales pipeline growth exceeded our expectations.
In addition, we have 40, new logos and considerable add on sales and implementation already all totaling $37 million in IRR.
I continue to be impressed with our team the upcoming product portfolio and the market opportunity. We have in front of us and thank you to all of our <unk> for your passion and execution, we started off the year very well.
Last week, we held our annual user conference in Texas, with 325 client and prospect attendees, representing 149 financial institutions.
This was the largest in person event in our history.
And through many hours with clients prospects and partners I heard a consistent theme of mandatory innovation.
The industry knows that it has a significant opportunity to transform and become the kind of service that customers demand in a digital age.
Our clients understand that a good digital experience attracts and retains customers in fact, and a steady response around generational preferences and banking conducted specifically for this conference 80% of Americans say the quality of their digital banking experience is essential to a new firm, becoming their primary financial provider and <unk>.
36% of Gen Z at 50% of millennials have had such a bad experience with the financial providers digital offering that they opened an account and a new company.
I'd like to share with you some of the specific areas of digital banking that we're top of mind with our conference attendees.
First is user experience.
Our customers want to digitize as much of the banking experience as possible and they need a great user experience to make that happen.
We've always been passionate about delivering a user experience that based upon independent mobile App store ratings, it's one of the best in the market.
Our investments in functionality ease speed and integration are why we continue to grow faster than any major digital banking provider.
And in a few weeks, we will release, a new mobile platform that includes an enhanced user experience and one that enables our clients to customize and extend their mobile solution, while also effectively doubling our mobile development velocity.
Second is security.
Alchemy has always been focused on providing security innovations to help our clients protect their institutions and customers are security partnerships range from machine learning the behavioral heuristics biometric security hard and soft security tokens and digital authentication of users are.
Our <unk> acquisition is an example of providing products with security in mind.
With this technology and just the last 12 months, we've monitored the flow of over $300 billion of ACTH checks and wire transfers and account holders have stopped over $1 billion in fraud without financial institution intervention.
Third is access.
Alchemy has had a front row seat seeing financial institutions serve as the economic backbone of our communities.
We've seen the power of its unlocked when consumers and businesses can interact with their financial institutions and an always on digital world.
It's why we acquired MK decision now known as al can be ignite after midnight provides seamless onboarding and a frictionless experience for users to open deposit for credit accounts.
Just one example of how we help expand access to financial resources.
Fourth is data.
Financial institutions know that targeted personalized and relevant communications are a requirement.
In the study I referenced previously we found that 64% of Gen Z wished that their financial provider offered in more personal digital banking experience.
This is why we announced the acquisition of segment and innovative marketing data platform with 147 banking credit Union clients.
<unk> is a modern data platform that Leverages machine learning and artificial intelligence to provide financial institutions with data driven marketing strategy and analytics.
Segment expands our Tam by $1 billion.
As immediate breadth to the alchemy product portfolio enhances the value of our dataset and helps our clients generate incremental and attributable revenue on the alchemy platform.
Segment is also a great complement to our most recent acquisition of MK decision as I said earlier now called alchemy ignite.
<unk> can now offer a complete solution for every stage of the end customer lifecycle from account opening to servicing and engagement to cross sell and back to account opening.
And with very little overlap in the alchemy, and said with client basis, we see a clear path to broaden our combined relationships in the market.
I'm also encouraged by the resilience of our customer base.
About a month ago I met with 17 customers Ceos and they told me that cash deposits surged since the beginning of the pandemic, which weighed on net interest margins. However, they were having some confidence that they see a recovery in certain types of loan demand.
And these leaders are aware that continued innovation will be key to strengthening their businesses in the next cycle.
We also continue to see elevated M&A activity among the 10000 financial institutions in the marketplace and as we've said before.
The institutions that we serve are acquirers in this market and their digital user growth, which was 14% in 2021 is typically higher than the market average.
For our part we continue to see strong demand for digital banking innovation, which creates growth in our pipeline as banks and credit unions view digital banking is core to their strategy and they need a partner like alchemy.
Here's a great first quarter.
And more than ever I'm convinced we're on the right track with our focus on five areas.
Number one we are committed to becoming the digital banking provider of choice for banks, while maintaining our market leadership position with credit unions.
Two we will continue our focus on growing add on sales.
Being good progress here as evidenced by our financial performance this quarter.
Number three we.
We continue to allocate investments to make our platform. The foundation of our clients' digital banking infrastructure customers I talk with at our conference said that they want an extended extensible platform that allows them to plug and play Fintech innovation.
Fourth we are strengthening our focus on talent, ensuring that alchemy remains an attractive employer in the market. It makes the right investments to keep our teammates and grow their careers and.
And fifth we will remain agile on the M&A front.
Recent acquisition of segment demonstrates that we are measured and strategic about acquisitions and I expect to continue that thoughtful approach.
In closing thank you again for joining the call to hear about <unk> progress in the road ahead I can speak for the management team and the entire company when I say, we're proud of the results we've delivered to date.
And we are energized by the opportunity in front of us with that let me turn the call over to Brian .
Thanks, Alex and good afternoon, everyone in the first quarter, we continue to execute and deliver strong financial results, let's begin with revenue.
In Q1, we achieved revenue of $44 8 million, which outperformed the high end of our financial guidance by 800000 and represented growth of 35% compared to the prior year.
This was driven by continued strong performance across all our primary revenue drivers, we implemented three new logos in the quarter, bringing our digital platform client count to 179 compared to 156 in the prior year as.
As a reminder, we expected the first quarter of 2022 to be the lowest in terms of new implementations, which is consistent with 2021, and we expect the cadence for the remainder of the year to be in line with our 2021 as well.
For example.
We now have 40, new logos, representing $1 6 million digital users in the process of implementation during the remainder of 2022, we expect to implement financial institutions from our backlog, representing one 4 million digital users.
We exited the quarter with $12 8 million registered users live on the platform of $2 8 million or 28% compared to last year and up 464000 sequentially.
Over the last 12 months digital user growth continues to be driven by two areas first we have implemented financial institution supporting $1 3 million digital users and second our clients have increased their digital user adoption by $1 5 million users representing 15% growth.
We continue to drive <unk> through add on sales and higher new client <unk> growing revenue per user to $13 80.
Up 3% compared to the prior year quarter.
3% of new cells in the first quarter.
This team also renewed for clients during the quarter. We are very excited with the continued success from our client sales team and expect this to be an area of continued growth and investment.
We know survey Tam of nearly $11 billion. This includes $1 billion and Tam related to a recent acquisition of segment.
And as the Premier digital banking provider in the space. We believe we have a significant opportunity to expand our Tam both the product development and M&A activity.
Now turning to gross margin profitability.
Our target operating model is 60% to 65% non-GAAP gross margin as we scalar revenue we expect to achieve this at a pace of 200 to 300 basis points of gross margin expansion on average per year. However, some years or quarters gross margin expansion might exceed our average objective converse.
Holly and some years of quarters, we may experience lower expansion, resulting from investment and M&A activity.
For the first quarter of 2022, non-GAAP gross margin was 58% compared to 55% in the year ago quarter expansion was driven primarily by revenue scale greater utilization in cost efficiencies and our client implementation client support and client success functions and was somewhat offset by.
Higher costs associated with our third party revenue relationships and gross margin dilution from our <unk> decision acquisition <unk>.
Please note the M&A integration and investments in postal activities, such as our client implementation team will constrain <unk>.
Margin expansion for the next few quarters.
Moving to operating expenses for.
For the first quarter of 2022, non-GAAP R&D expense was $12.3 million or 27% of revenue a.
A year ago R&D represented 32% of revenue the margin expansion is primarily attributable to revenue scale that we continue to grow R&D on an absolute dollar basis or 16% when compared to the prior year quarter.
non-GAAP sales and marketing expense was seven $1 million or 16% of revenue in the year ago quarter sales or marketing represented 15.7% of revenues. The primary driver for the uptick his head count investments in ourselves a marketing teams as we scale for our next phase of growth. The addition of a chief revenue officer to our.
Executive team and the return to pre pandemic sales activities such as industry conferences.
non-GAAP general and administrative expense was $10.9 million or 24% of revenue in the year ago quarter G&A was approximately 27% of revenue. The margin expansion is primarily attributable to revenue scale.
During 2021, we experienced growth and G&A expense throughout the year as we absorbed incremental public company cost. We now have reach a sustainable level and expect to leverage G&A expenses, a percentage of revenue as we evidenced in Q1 of 2022.
Our adjusted EBITDA loss for the first quarter was $3.6 million better than the high end of our expectations and considerably better than the year ago quarter. As a reminder, our goal is to balance investment opportunities with revenue growth and to maintain a good line of sight toward adjusted EBITDA positive, which we expect to achieve as we exit 2023.
Now moving onto the balance sheet.
We ended the quarter with just over $299 million of cash and marketable securities representing a $9 million net use of cash during the quarter we.
We closed the segment acquisition on April 20th fifth for consideration of $135.5 million.
On April 29th we ended our credit agreement, which now includes Silicon Valley Bank Comerica Bank and CIBC, we're very excited to partner with these financial institutions.
The amended credit agreement will mature on April the 29th 2025 and.
And it expands our revolver from $25 million to $40 million <unk>.
Expands our term loan from $25 million to $85 million.
The minute credit agreement also allows us subject to certain conditions to request additional revolving loan commitments in an aggregate principal amount of up to $50 million. We funded the segment acquisition with approximately $60 million of incremental term debt and $75 5 million of cash from our balance sheet.
As evidenced by our acquisition of segment, we continue to seek opportunities to use our balance sheet and access to capital to accelerate technology growth and expand our addressable market through M&A.
We approach M&A with conservative guidelines around Roy deal size and portfolio integration and we expect to continue with this approach going forward.
Now turning to guidance.
Second quarter of 2022, we are providing guidance for revenue in the range of $47.5 million to $48.5 billion and adjusted EBITDA loss of $7 million to $5.5 million or Q2 revenue guidance includes approximately $2 million from the segment acquisition R Q2 adjusted EBITDA.
Guidance includes incremental costs from our client event co lab strategic projects incremental to Q1 related to our AWS environment and go to market strategy Tan.
Talent acquisitions shifting from Q1, and an expected small loss from this segment acquisition as we begin integration.
For full year 2022, we are raising our guidance and now expects full year revenue in the range of $198 million to $201 million and an adjusted EBITDA loss at $21 million to $18 million are full year guidance includes approximately $9 million of revenue in a range of negative.
$1 million to an immaterial positive amount of adjusted EBITDA from this segment acquisition, we expect segments annual recurring revenue under contract at December 31, 2022 to be in the range of $15 million to $17 million. This represents a growth rate of 30% to 50% based on the.
Same metric in the prior year.
In addition, the full year adjusted EBITDA guidance continues to assume moderate pressure on wages, resulting from the increasingly competitive environment for recruiting and retaining talent. This continues to be an area of focus and is key to our success in 2022 and beyond.
To summarize we posted a strong first quarter closer to substantial acquisition expands our team by $1 billion. We continued our good progress in sales implementations technology infrastructure and human capital and we continue to improve our position in the marketplace with that I'll hand, the call to the operator for questions.
We will now begin the question and answer session to ask a question.
If you're using a speaker phone please pick up your handset before pressing.
Keith.
Question. Please.
My first question comes from Miami.
Please go ahead.
Hey, good afternoon. This is Sam <unk> today, thanks for taking the questions and congrats on the results.
I was wondering if you guys could talk a little bit more about the segment acquisition and your expectations as far as cross selling the segment offering the core alchemy platform. Thanks.
Thanks.
Hi, This is Alex thanks for the question. We're excited about two things number one this is a very attractive product.
As a standalone sale.
The company is built themselves into an attractive company with as I said earlier, well over 100 customers.
Selling segment directly to financial institutions, and we we would.
We'll continue that motion and and expect success with that motion. We're also very excited about cross selling to the alchemy base.
Our customers.
Have always wanted we've had products in this space, but our questions has all have always wanted to use data to improve their.
The Wednesday personalized marketing offers and targeting and then also be able to to.
Deliver offers.
Back into the mobile product if you think about it as a channel. So you say you would take data from.
Segment and allow a customer to better target one of that are targeted customer and develop an offer.
Make that offer but then also.
Distribute that offer into the mobile.
The alchemy mobile product as a channel.
Give you. An example, we had we close the acquisition right before we started our customer conference and.
So the segment folks were at our customer conference and obviously, our customers were there the breakout sessions for the segment topics, we're standing room, only and there was a lot of enthusiasm from our customer base. So in summary.
We got a great opportunity to sell this product and technology stand alone.
Without the alchemy product.
And we also see.
Value that's created for our customers in selling segment back into our customer base.
Got it that's very helpful. Thank you.
And then just a quick follow up I was wondering if you guys could talk a little bit more about some of the new business wins and renewals from the quarter.
And what the mix was there between like banks and credit unions.
That's great and Q1, we had a very successful quarter.
In new cells in a couple of different areas, primarily when you compare to prior year, either in a quarter or drilling 12 month basis Q1 resulted in a significant start.
For the year, which we're super excited about but.
He was heavily dominated for banks, which is exciting for us.
Five new logos that we had for those were banks on average the financial institutions averaged just over $2 billion of assets across all five and they took about 15 products, resulting in arpus of $25 and that compares to our $13 and 80 company average so.
We are continuing to see each quarter each year or.
Our sales forces getting very good at selling more product as we expand the platform and that initial order.
What's equally as exciting during the quarter is our client sales team client sales team represented over 40% of our business and total <unk> that we added during the quarter, that's a step up.
From the last year, it's a step up from Q for now it was a a lower new logo quarter for us. So you would expect client sales to represent more of the the sales during the quarter, but on a year over year basis client sells was up significantly so again, great momentum coming out of that team the four.
Renewals that we had represented close to $2 million at AOR collectively across those renewals and we.
We were successful increasing the run rate from that business, 7% fairly evenly split between price increase an existing product and adding new product and <unk> as a part of the renewal.
In 2022, we expect to renew close to $20 million a day.
A R R, which up to this point in our life cycle, we've only renewed across all years $20 million or so.
So a very exciting renewal year for us.
And we hope to perform at the same level that we have in the past.
Awesome, that's super helpful. Great to hear thanks for taking the questions get congrats on the results.
Great. Thank you.
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