Q2 2022 Alkami Technology Inc Earnings Call
2022 financial results Conference call My.
My name is Andrea and I'll be your operator for today's call.
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I'll now turn the call over to Steve Calk. Please go ahead.
Thank you operator with me on today's call are Alex Shoopman, Chief Executive Officer, and Bryan Hill, Chief Financial Officer. During today's call. We may make forward looking statements about guidance and other matters regarding our future performance. These statements are based on management's current views and expectations and are subject to various risks and uncertainties. Our actual results may be different materially.
For a summary of risk factors associated with our forward looking statements. Please refer to today's press release and the section in our latest Form 10-K, and 10-Q entitled risk factors and forward looking statements.
Statements made during the call are being made as of today and we undertake no obligation to update or revise any forward looking statements also unless otherwise stated financial measures discussed on this call will be on a non-GAAP basis. We believe these measures are useful to investors in the understanding of our financial results. 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 I am pleased to report another quarter of strong performance.
The second quarter of 2022 alchemy grew revenue 38%.
Once again ahead of expectations. We also exited the quarter with $13 3 million lives registered users on the alchemy platform up 2.6 million users compared to the prior year.
This past quarter, we continued to make progress on our key priorities, which we shared with you at the beginning of the year.
The first two are to become the digital banking provider of choice for banks, which is similar to our position with credit unions and increase your add on sales.
And the first six months of 2022, we have outperformed our expectations in both of these areas.
We signed seven new platform logos in the quarter, including two more banks.
This brings our first half new logo wins to six folks and six credit unions.
The sixth one so far this year outpaced the five wins, we had during all of 2021 and our momentum continues to build.
Our qualified pipeline for the next 12 months remains at an all time high and almost 30% of the pipeline is with banks.
In Q2 add on sales reached an all time high as a percent of new sales costs.
Customers want to add products to their banking platform that allow them to offer differentiated digital experience for their customers and they demand ease of integration into their platform and fast implementations.
This has been a focus of alchemy and our add on sales results indicate that we are meeting the market's requirements.
Our results are evidence of the continued passion, our alkermes tab to help create the greatest digital bankers on the planet and serve their members and their customers with a flawless experience. Thank you to my fellow ALCHEMIST you truly are the best.
I continue to get questions on the macro environment from the investment community. So let me share some thoughts.
At our user conference a few months ago, where we interacted with over 300 clients and prospects in the weeks following with dozens of customer interactions all continue to hear some common themes.
First just the volatility in the economy, our clients require modern banking solutions at a level of functionality that you see in online shopping and entertainment they considered a mandatory innovation.
More than ever people want a bank, where the technology is seamless full service and secure and for many they need us more than they need a local branch effectively making the digital platform the front door of the financial institution.
Our own research confirms this with consumers, making the digital experience is the most important attribute in selecting a new F. I R.
The branch convenience and ATM locations.
Among many of the thousands of fr serving the U S user counts are on the rise as evidenced by the double digit user growth, we continue to see among our clients.
Some of that is demographically driven but there are other factors.
For instance, historically, we managed our personal finances from one or two accounts with a single institution.
But today, we may have as many as a dozen accounts across multiple institutions.
This means that just because somebody opens are trading well crypto account elsewhere in F. I does not necessarily lose that customer.
And in fact are forward thinking clients see digital product proliferation, as a growth opportunity and the objective of our platform investments is to help our clients expand their relationships and serve as an aggregator for financial innovation.
Another theme as well watching the digital front door and keeping customers satisfied.
Also need to streamline our capabilities, ensuring they're using technology to optimize their operations and reduce expense.
Finally, a theme that I consistently hear is the F. EIS are increasingly realizing the value of the data they have and its ability to provide their customers with a better experience and drive revenue opportunities.
Our own research confirms this nearly two thirds of millennials say that relevant product recommendations are critical in their digital banking experience.
These things are why in a challenging macro environment, we continue to see strong demand we.
We have one of the largest qualified pipelines in our history and our Pos implementation schedule.
There are few digital banking companies, who can provide a modern cloud based <unk> solution and have the capacity and track record to manage $1 5 million or more user implementations at a time.
Alchemy is proud to be a leader and one of the fastest growing companies in the market.
I'd like to give you some product updates with our sustained platform and product investments, we continue to bring new products and capabilities to the market.
Well give you some examples.
First we are increasing the pace in business banking.
Over the past few years, we've made significant investments in our business banking capabilities. Today, we can serve our target bank market with our retail and business offerings. Just as we currently serve business customers that are credit Union clients.
And over the last year alone, we allocated tens of thousands of development hours to add capability to our product. So that we can expand our target market to a larger institutions that have more sophisticated commercial customers.
That investment has been focused on areas, where business customers need functionality, including more sophisticated money movement customer service and advanced user Rolls Royce administration.
At the same time, we built out our sales and marketing effort focused on the needs of banks and this is making an impact we're getting invited into more opportunities winning against well known incumbents and our bank pipeline is now approximately 30% of our total qualified pipeline.
One of our bank wins in June came to alkermes, specifically for our business functionality and our commitment to keep them best in class digitally.
I met them at our user conference and they commented on the power of hearing candidate experiences from other alchemy clients and on the value of a single code based SaaS application that allows innovation to get to our clients faster and with more of a liability and security.
Second.
Based on data products and our segment acquisition.
Most of us know that generic emails and text or becoming ineffective. They know, they're personalized and relevant communications or requirement, if you're going to reduce churn and expand relationships.
Last quarter I mentioned, a study we did in which 64% of Gen Z wished that their financial provider offered a more personal digital banking experience and will choose an F. Five based on that capability.
Dish is worst segment helps the market.
Most of the funds already have some idea of certain customer attributes such as their income spending pattern on credit ratings and propensity to use other services at the Fi what they have not been able to do until now is automate making that knowledge actionable.
For example.
Our financial institution to offer approve and open a personal or small business loan or credit card. They do not want a porsche their customer to go through a time consuming application process.
With an integrated segment solution offered by alchemy, and if I can not only identify the right targets for products, but can also automate the offer of the right product to the right customer at the right time, using actionable data with our key lifestyle indicators.
That capability combined with our digital account opening solution ignite enables fireeye to execute from identification to offer two account opening and ongoing service all through a mobile device.
Not only helps our can be expanded with new client relationships, but it improves our clients' topline and deepens their customer loyalty.
With over $1 7 billion personalized messages delivered segment is the leader in this space and we're excited to bring this capability to all of our clients.
Third let me give you an update on our mobile platform transition last quarter. I told you we were launching a new mobile platform that includes an enhanced user experience, which enables our customers to customize and expand their mobile solutions will basically doubling our mobile development velocity.
That launch went live in Q2.
Client feedback is excellent.
All recent client launches had been on the new modernized mobile platform and we are currently in the process of publishing the new apps for all existing clients over $2 million of our users are already on the new apps and the remaining 11 plus million users will have the new apps deployed over the next few months. This further demonstrates our ability to.
Deploy new technology.
Finally, let me give you a strategy update.
At the beginning of the year I shared with you five key priorities to recap.
First we.
We are committed to becoming a digital banking provider of choice for banks, while maintaining our market leadership position with credit unions. When we started the year, we talked about five to 10 bank wins for the year and we were ahead of schedule.
Second we will continue to focus on growing add on sales seeing good progress on this priority with add on sales representing over 40% of sales. So far this year and we were taking actions to drive continued growth and existing client sales.
Third we continue to allocate investments to work to make our platform the foundation of our clients' digital banking infrastructure.
All of our clients have an analog back office and they need to offer innovative digital products and experiences to their customers.
<unk> will be the operating platform.
Connects or passed with your future.
Our focus is to become the most scalable and extensible platform in the market and that's why we've gone from six third party integrations in 2014 to 27 in 2018 42 today.
Fourth we're strengthening our focus on talent, ensuring that alchemy remains an attractive employer in the market by embracing a remote work strategy, we reduced our time to hire and we've been able to fire. Some fill some very hard skills to fine cut some key skills to five.
And then if I can.
Finally, we will remain agile on the M&A front.
For the remainder of 2022 I expect we'll be focused on integration on the integration of segment, our bank strategy and our platform scalability, but if we see opportunities that fit our portfolio and drive value for our customers, we will pursue them within our capital return requirements in closing thank.
Thank you again for joining the call to hear about cute alchemy Q2 results.
We are proud of the quarter and we are energized by the opportunity in front of us and with that let me turn the call over to Brian . Thanks.
Thanks, Alex and good afternoon, everyone.
Second quarter results were strong across all our key metrics for the second quarter of 2022, we achieved revenue of $50 5 million, which outperformed the high end of our financial guidance by approximately approximately $2 million and represented growth of 38% compared to the prior year.
This was driven by continued strong performance across all of our primary revenue drivers combined with the segment's revenue contribution just 2 million just over $2 million, which was in line with our expectations.
We implemented eight new logos in the quarter, bringing our digital platform client count to 182 compared to 161 in the prior year. We now have 39, new logos and implementation, representing one 4 million digital users and during the remainder of 2022, we expect to <unk>.
Implement 24 financial institutions from our backlog that represent approximately 900000 digital users and an expected acceleration from the front half of 2022.
We exited the quarter with $13 3 million registered users live on our digital banking platform.
$2 6 million or 24% compared to last year and up 520000 digital users sequentially.
Over the last 12 months digital user growth continues to be driven by two areas first we implemented 28 financial institutions supporting $1 2 million digital users and second are our existing clients have increased their digital user adoption by $1 4 million users or 11% growth.
Offsetting our user growth was churn of 61000 digital users.
We continue to maintain a very high gross retention rate of 99% measured in terms of a R. R and digital use retained over the last 12 months.
We ended the quarter with an RP you of $15 33, which is 14% higher than last year. This compares to our blended market opportunity of approximately $57 per user per year, which includes the segment revenue opportunity.
The segment acquisition contributed 88.
RP you expansion organic RP your expansion of 90 sevens or 7% resulted from add on sales success and the addition of new clients, who tend to onboard with our higher average RPT.
Subscription revenue grew 38% compared to the prior year quarter and represents approximately 95% of total revenue.
We increased <unk> by 41% in total or 33% organically and exited the second quarter at $204 million. It's important to note. We currently have over $38 million of <unk> backlog for implementation over the next 12 months and.
In addition, we expect to exit 2022, with <unk> $225 million to $228 million, representing total growth of 33% to 35% and organic growth of approximately 27%.
At the halfway point of the year, we are continuing to see strong demand across our product portfolio well ahead of 2021, our total new sales performance outpaces, the halfway point of 2021 by over 80%.
Just as exciting our client sales team continues to build on or add on sales success, representing over 40% of new sales in the first half of 2022 compared to 23% for all of 2021 and 17% for all of 2020.
Remember that many of our early clients onboard and when we offered less than half of products. We offer today. We are very excited with the continued success from this team and expect this to be an area of continued growth and investment.
Now turning to gross margin and profitability.
Our target operating model continues to be 60% to 65% non-GAAP gross margin as we scale. Our revenue we expect to achieve this at a pace of 200 to 300 basis points of gross margin expansion on average per year.
For the second quarter of 2022, non-GAAP gross margin was 58% compared to 57.5% in the prior year quarter expansion was driven primarily by our revenue scale and was somewhat offset by higher costs associated with our third party revenue relationships investment and Poe.
So activities necessary to support our significant implementation backlog and gross margin dilution from our inland K decision acquisition.
On our recent calls we noted in the past that past M&A activity and investments in post sale activities such as our client implementation team would constrain margin expansion for the next few quarters.
Moving to operating expenses for the second quarter of 2022, non-GAAP R&D expense was $14 million or 28% of revenue a year ago. R&D represented 31% of revenue. The margin expansion is primarily attributable to revenue scale, but we continue to grow our.
R&D on an absolute dollar basis, when compared to the prior year quarter.
non-GAAP sales and marketing expenses were 9 million or 18% of revenue in the prior year quarter sales and marketing represented 14% of revenue. The primary drivers for the uptick is returning to pre pandemic sales activities such as our in person client conference co lab and higher travel costs.
Combined with head count investments in ourselves and marketing teams and hiring new sales commissions in line with our recent sales performance.
non-GAAP general and administrative expense was $12 million or 24% of revenue in the prior year quarter G&A was approximately 29% of revenue. The margin expansion is primarily attributable to revenue skill. During 2021, we experienced growth in G&A expense throughout the year as we.
<unk> incremental public company costs, we now reach a sustainable level and expect to leverage G&A expense as a percentage of revenue as we demonstrated in the first half of 2022.
Our adjusted EBITDA loss for the second quarter was $5 3 million better than our expectations and essentially flat with the prior year quarter.
As a reminder, our goal is to balance investment opportunities with revenue growth and to maintain a good line of sight towards adjusted EBITDA positive, which we still expect to occur as we exit 2023.
Now moving on to the balance sheet, we ended the quarter with just over $213 million of cash and marketable securities. We funded this segment acquisition with approximately $61 million of incremental term debt and $71 million of cash from our balance sheet, representing the primary use of cash during the quarter.
Now turning to guidance for.
For the third quarter of 2022, we're providing guidance for revenue in the range of 51 5 million to $52 5 million and an adjusted EBITDA loss of 6 million to $5 million or.
Our Q3 revenue guidance includes approximately $3 million from the segment acquisition, our third quarter. Adjusted EBITDA guidance includes an immaterial loss from the segment acquisition as we continue integration.
And investments in post sale activities to support our significant implementation backlog and digital user growth.
For full year 2022, we are raising our guidance and now expect revenue in the range of 201 million to $203 5 million and an adjusted EBITDA loss of 20 million to $18 million. Our full year guidance includes approximately $9 million of revenue and an immaterial adjusted.
EBITDA loss from Sigma.
To summarize we continue to execute across all areas in the business and continue our progress in cells implementations in technology infrastructure.
In addition, we are improving our already attractive position in the marketplace with increasing momentum among among banks along with additional client exposure through segment.
With that I'll hand, the call off to the operator for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
Okay.
And our first question will come from Bob Napoli of William Blair.
Go ahead.
Hi, Thank you nice solid and stable results.
Great that are.
Just on the.
The I guess, the new modern platform, if you would what do you see.
What material differences are there in the new platform.
The prior platform.
Bob This is Alex are you speaking to the mobile platform question.
Yes, yes.
Yeah, so what.
Historically, we built our mobile application, both two and iOS.
Operating system and an Android operating system.
And that was great, but as a as customers became more and more sophisticated with their needs for the mobile application.
It became difficult to keep those two platforms in sync and continue to.
Rollout features at the pace that the market wanted so we took a decision to rebuild the platform on.
Our platform on a technology called flutter, which comes from Google and that platform allows us to.
Have one code that's running across both Android and.
IOS. So now basically we were able to to make one mobile application across both of those platforms.
The thing that it allows us it creates more capability for the customers to customize the user interface and user experience. If you will for their own customers. So it allows them to tailor it more for their branding if you will.
And then the other thing that it does is probably too much detail for you, but it allows us to create a more friendly software development kit that allows our customers.
Once again to have more flexibility. So in summary, we know basically right wants to one platform.
It allows us to deploy technology more quickly and it's giving our customers both a bigger feature set and more ability to tailor the platform to the experience that they want to deliver for their members.
Great. Thank you and then Brian .
On the gross margin I mean, your target of 200 to 200 basis points year over year.
I mean, you're obviously for the reasons you mentioned, you're kind of flat year over year and gross margin do you still expect to be able to as we end the year to be.
So within your target range for gross margin expansion.
And are you on track I guess now how confident are you in your long term total operating model if you would.
Yeah, Bob on.
The gross margin front as it relates to achieving 60% to 65% gross margin our target operating model, we're very confident in that.
Most of that's going to come through revenue scale.
As we've talked about in the past.
When we renew clients.
We had a gross margin.
Expansion that occurs at a unit economic level. So that's another area for gross margin improvement and then we're also investing in the platform that provides efficiency as it relates to hosting expands as it relates to our ability to more efficiently implement clients. So so those are other areas of gross margin expansion.
In the future as it relates to 2022, the guide of 200 to 300 basis points a year, that's an average over a longer period of time for the reasons that I described on the call and Ive spoken to in the past as it relates to implementation investments to support our large backlog.
As well as the M. K decision acquisition being a headwind to gross margin in 2022, we're not going to achieve the 200 to 300 basis points expansion. This year, we expect to return back to that level of expansion in 2023, but in 2022 that will be compressed somewhat.
Understood. Thank you and just sneak in one last one.
If you would.
Now the add on products.
They have a lot of momentum with which products are.
Most attractive are driving that.
Both of that on which are the most.
Yes.
Yeah, Bob worse, we're seeing great adoption across almost each of our product family categories. We have eight product family categories, and we're seeing significant adoption and six of those and then the other and I'll mention those here more materially and then the.
The other two product family categories those typically.
<unk> products on the initial MSA for example, our SDK SDK kits and extensibility, that's typically an MSA product the original MSA and our card management solutions, our original MSA products, So where we're seeing a lot of traction in our top three from across cross sell.
<unk> is our money movement.
Product family category, which includes our crypto product instant account verification and bill pay products. We're also seeing a lot of traction in our client service product family group, which includes chat and conversational AI products, and then fraud and security is I would.
Say rounds out the top three which includes account takeover and of course ACTH alert, but those are the areas, where we're seeing the greatest adoption so far in 2022.
Thank you very much.
Okay.
The next question comes from Matthew Kelley of Needham. Please go ahead.
Thank you good evening Congrats Alex.
Great quarter.
Brian I wanted to just ask you about these new wins, maybe Alex could you give us a sense of the size and scope of the banks that you are winning I just wanted to get a better feel for the.
The opportunity set there versus the credit unions that youre, winning as well.
Yes, if you look at if you look at the bank market at the very top of the market.
There are some very large institutions that serve them.
A very complex.
Commercial banking capabilities of large multinationals that is not our target market.
And so if you look at if you look at banks in terms of a target market.
We are winning banks that serve.
SMB customers and mid market customers and.
That makes up.
In terms of total number of institutions, we can target probably 99% of the institutions in the United States.
Yeah.
Got it that's helpful. And then maybe Alex for Brian just wanted to get a sense of with rates moving up and clearly banks see better profitability, how much of that is playing into their ability to spend maybe more aggressively.
On the digital transformation or is it just more of the same wanted to get a sense again of how much of that incremental impact that you're benefiting from a near term and then over the medium term potentially.
Well I'll speak to.
Just spoke to a CEO of a community bank on Friday afternoon, right and this is a this is a decent sized regional community bank.
And.
Would he told me was dead.
<unk> been having conversations about continuing divest in digital and creating a better digital experience for their commercial customers and then really I know you've heard this 100 times, but but during COVID-19 their customers went from hey, I'm pretty interested to I have to do it this way.
And then that convinced him on the board that they really needed to upgrade the experience that they were delivering to their commercial customers. So I think that's a microcosm of what we're seeing.
That once.
Once again.
Our transformation has been a buzz word but this is become a mandatory innovation for these institutions and at the board level, they're all talking about the need to provide that.
The type of retail experience that their commercial customers have gotten used to in either retail banking or entertainment or or shopping and they've got to provide it in their commercial offerings or theyre going to start to lose those customers.
Understood. Thank you for that perspective, congrats on the quarter.
Okay.
The next question comes from Rick Kellogg attach of J P. Morgan. Please go ahead.
Hi, guys. Thanks for taking the question and congrats on the great coronary I'm curious if you guys can speak a little bit to your end market and the demand environment.
Typically if you have any insight into power against our key areas like RFP.
Okay.
I'm sorry, I just lost the last couple of words I heard the question about insight into the end market and then I think there was a question about rfps, maybe yeah, specifically, if you have any insight to start indicators like RFP.
Yeah.
Yeah, I still missed again, but maybe if the question is unlike the demand environment.
Certainly.
I've learned one thing in the last few years is I can't predict what the economy is going to do so, but we have not seen any softness.
In demand over the last couple of quarters, even though the macro environment. As you know is is super volatile I don't know if you want anything that Brian No I mean, Alex.
Alex mentioned this in the last question, but really to maintain competitiveness in a up or down market. This is a mandatory innovation that's how our clients view it that's how we view it.
And expanding the platform and offering even a greater.
Digital banking experience as a mass and as a result of that what we're seeing is a sales pipeline.
That's really as strong as it's been in the company's history, and that's coming off of a couple of quarters of pretty good our new sales activity, which generally means you have to rebuild your pipeline, but we maintain a very strong pipeline.
Our new sales in the first half of 2022 is significantly higher than the same.
Six months of 2021, so that gives us a lot of encouragement.
We're seeing a lot of adoption in add on sales that's increasing the average number of products that our clients subscribed from us today. So all of these are indicators to us at the end market is still strong.
And an expectation that even moving into a tougher economic environment, even creates a greater need for our solutions and maybe the one thing I would add just.
When you mentioned Rfps, we're fortunate that.
We are fairly well known entity on the retail side of.
The industry and in credit unions, and so we do.
Tend to get invited into those opportunities. What we have seen is that as we've had some continued bank wins and as the markets become aware of the investments that we've made.
In the.
In software specifically for banks that have commercial customers we have.
Now getting invited into more RFP.
Opportunities in banks than we than we were maybe a couple of years ago.
Thank you for the color guys.
And our final question comes from Pat Walraven of JMP Securities. Please go ahead.
Hi, This is Joe on for Pat. Thank you for taking my question.
Just just related just giving you a very long contracts.
In this end market do you have any sort of inflationary price escalators that are built into those built into those contracts.
Yeah, our contracts are structured more for increasing the minimum commitment throughout the term of the contract or contracts on average are 70 months and so each year there'll be a step up and the minimum commitment from our clients now that generally comes at a lower cost.
Loss per user for each incremental user for our clients. So how we're increasing the contract value over time or in any one year's has stepped up and minimums.
Understood. Okay. So there's no component, that's increasing <unk>, along with CPI or anything like that built that.
Not not generally we do have some contracts that possess that but the normal contract is more of a step up in the minimum <unk>.
Contractual users across each product yeah. So.
The <unk> growth in the quarter is not a result of pushing through inflationary price increases.
Yes.
Understood, Yes, I was thinking more just you know over a longer period of time are more on the go forward I'm just curious how the structure, but thank you for that and then I guess you called out 30% of.
Yeah, I'm, sorry, just one more comment on this but what we are seeing is we're seeing price increases at the time of renewal.
So the five contracts that we've renewed in 2022.
Been able to increase the a or are on those contracts, 10%. They represent about $4 million of <unk> about two thirds of that 10% comes from cross selling additional products and the remaining one third is a price increase that occurred at the point of renewal.
Understood. Okay. Thank you for that Brian and then I guess my My next my next question is just you know of the eight product categories or our families.
In your portfolio.
Whereas the most kind of <unk> to go out and unlock on the roadmap.
Yeah.
We're not.
Very penetrated in any of our product family category. So there is an opportunity for.
You have significant cross sell into our base, we're less than 30% penetrated into our base.
Products that were seeing.
Higher RP editions really come through and some of the money movement products that I mentioned earlier like our crypto product for example has a fairly high revenue per user opportunity.
Also on the client services area.
Our.
Chat product and our conversational AI product has a very high RPC opportunity that comes with it and then even in our security and fraud products as it relates to AC H alert that has a very high RP along.
Associated with it so really it's those individual products within each product family group has some significant opportunities in the <unk>.
Areas that I mentioned in the earlier question, that's really what's driving the cross sell in 2022, and that's ultimately resulting in the success of in the back half of 2021 and the success that we had early in 2020 twos driving the 8% organic <unk> expansion.
So far in 2022.
Got it okay. Thank you congrats on the quarter.
Our next question comes from Andrew Schmidt of Citi. Please go ahead.
Hey, guys. Thanks for taking my questions here and apologies. If this is redundant, but just wondering if you can talk about just your discussions with.
Thanks in the pipeline, obviously, some competing factors with you now.
Nims going up versus kind of some increased uncertainty.
Just if you take your temperature on just the appetite for for digital banking transformation that'd be great. Thanks.
Yeah, you know so far.
We have not seen any diminished appetite for investing in digital banking transformation.
You know.
These folks who run these banks are really smart they understand what's going on and and they truly have.
Right.
Got their head wrapped around the fact that the digital channel is becoming the primary channel.
And just as they've looked at their investment portfolio in terms of new bricks and mortar there they're looking at this in the same fashion and theyre, putting it as a priority.
I mean could it drop off sometime in the future I'm not nostradamus, but so far we have just not seen any drop in demand.
For having.
Another CEO that I talked to two weeks ago.
With he and his entire senior team and the discussion was we have to have.
The best in class digital experience for our customers or we're not going to be competitive. So there's just a pretty broad based conviction in terms of the need to invest in a really good digital experience.
We have not seen a drop in demand.
Very clear thank you, Alex and then gone where it's gone from if you think about it a couple of years ago, you had kind of.
Yeah. The early adopters you had people that they are.
Understood before others what needed to happen.
We are we are in the bell curve of the market right now.
The broad market understand what needs to happen and.
And they really do know that that this is not a mobile application. This is the front door to their bank.
Okay.
Got it no it's very clear that's a very constructive I appreciate that.
And then it's a little bit too early to talk about 2023, but.
But you know.
Given the long implementation pipelines in the Arab World here It seems.
Pretty constructive setting up in next year, obviously, some blocking and tackling into next year, but what's the right way to think about visibility growth into next year I know, it's a little bit early but if you could give us a framework.
You know what's locked in what's left to go after things like that that would be helpful. Thanks a lot.
Andrew I mentioned a couple.
Key metrics in my prepared comments.
First one is the exit them.
Our $225 million to $228 million.
At the midpoint, 34% total AOR growth and organic growth of 28%. So so that should provide you some visibility into what we're thinking in the first half.
2023, when we're not providing guidance on this call because it is early but we did want to provide a perspective of where we expect to exit the year now we sit in a very.
In a good place I mean, it's a very predictable revenue model with 95% of our revenue subscription with.
With $38 million of AOR and backlog. So it's those two items that are key and providing us the.
The confidence and visibility to provide an exit run rate or.
The number that can then provide investors and analysts the ability to have pretty good precision as they're forecasting our first and second quarter of 2023.
Yes.
Actually very helpful. And then just if I could sneak one more in just in the competition.
Any any changes when you're you know when you're going up for new deals either.
On a smaller credit union side.
Anything like that across the spectrum to call out or has it been relatively stable over the past, let's call. It six to 12 months just curious if there's any any changes youre seeing in the market. Thanks, a lot guys.
On the credit side.
I'll give you a high level, then I'll, let Brian answer.
No real change on the credit Union side I think.
So certainly I think we've become a little bit more competitive in the bank market and so.
So our win rates have come up some in the bank market.
Brian I'll, let you.
Go into any more detail yeah, I mean in terms of the marketplace and our pricing and the type of financial institutions that were seeing in our pipeline and what we're actually selling the trend continues to be we're selling more product on the initial order, we're selling a higher ARPA you on.
Initial order the contractual term is continuing to benefit our revenue model and being extremely long term contracts are still averaging 70 months and then when you introduce banks into the mix banks tend to have because of the business banking component tend to have a much higher <unk>.
<unk>, so where if you look at our backlog today.
New logos.
That represent $1 4 million digital users will the credit Union.
The average is around $20 of RP, you, but the banks that are in our implementation backlog or closer to $27 just under $30 of <unk>. So that's a nice add.
Advantage that we're seeing as we begin to have more success penetrating the bank side of the market in terms of the size of the financial institutions.
We cover a pretty broad spectrum of the market.
Average bank in terms of assets that we're adding is around $4 billion to $5 billion, but we've added a bank that had $35 billion in assets we've added bank.
Banks that have had high teens.
Turn and billions of assets under management. So we're really seeing that opening up the banks out of the market is providing.
Even a broader size.
Financial institution that we serve.
Very helpful. Good quarter guys. Thank you very much.
Okay.
Our last question comes from Josh Beck of Keybank. Please go ahead.
Thank you for taking the question maybe just following along the line.
Banks, obviously thats been a success story in terms of them coming into the funnel. Obviously you know the ARP two elements of it just when we look at this year it seems pretty even at.
At least in the first half between banks and credit unions, obviously, that's a step up from prior year. So as we think about future years.
They're more likely to be a balance between banks and credit unions could eventually.
Chip the gross add new customers are becoming more so banks just curious how we should frame that up.
Yes.
Long term. So this is not next quarter or next year. If you look at the market. The market is half credit unions have banks and so if we're competitive in banks and if were known in the market.
We're doing our jobs well there than our expectation long term would be that we have a balanced new client win portfolio between banks and credit unions. There. Obviously, we've got a pretty large installed base with credit unions. So it would be quite a while before the entire install.
All base.
<unk> was was balanced between the two so so the fact that mid year were balanced between the two that that is a great that's fantastic, but but that balance between the two in terms of winning new logos is something that we expect in the longer term not not something that we would expect to have.
And.
In the next couple of quarters, Yes, Josh I mean, we expect to continue to win 30 to 40.
New logos that are credit unions, a year last year, we had five banks already through the first six months of this year. We have six banks, we started the year off with a goal of somewhere between 10 to 15 banks it looks like we'll probably.
You'll land somewhere in the range of that goal for 2022, and then as Alex mentioned, we will continue we expect to continue to create awareness in the marketplace.
Continue to gain momentum and banks it still banks represent 30% of our sales pipeline today, and we will reach a point.
Four five years out from today, where we'll each year originate an equal number of banks.
We do credit unions, we think the market can absorb that.
We think that there are other very good players in the space that they will win their fair share of business as well, but we think we're on a trajectory where we can achieve that over the next multi year period of three to five years.
Okay very helpful. Thanks, Alex and Brian and just looking at segment I think the the growth.
And in the year was 30% to 50% off.
Obviously that would be accretive to the high twenty's organic growth that you discussed.
So when we think about synergies and sustainability of the segment growth.
How should we frame that up.
So the segment that Youre speaking to the 30% to 50% growth that's contracted or so.
So that would include the implementation backlog for each segment.
We've only owned the asset since April .
Well, we don't fully have our arms around at this point is the speed at which we can go from executed order to implemented clients.
And so that's why we provided that guidance in terms of contracted.
Sure.
But we expect segment to be.
Significant contributor to <unk> expansion much like it was this quarter and we expect to see.
<unk> and other tuck in acquisitions.
Provide an ability for us to continue to cross sell and have organic revenue growth in the future and sustain our 25% plus organic revenue growth rate.
And segment as we're seeing a lot of progress I mean post quarter end, we had our first.
Cross sell of an existing alchemy client, where we cross sold segment into that client, which is very encouraging. This quickly after the acquisition to see that our client sales team is.
Finding opportunities to cross sell into our base.
This.
A question and answer session.
Conference has now also concluded thank you for attending.
Today's presentation and you may now disconnect.
Yeah.
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Yes.
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Uh huh.
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