Q2 2023 Alkami Technology Inc Earnings Call
Hello, and welcome to Alchemy second quarter 2023 financial results Conference call My name is <unk>.
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Please note. This event is being recorded I would now like to turn the conference over to Steve <unk>, Steve you may begin.
Thank you operator with me on today's call or I'll like shoot Man, 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.
Eight months are based on management current views and expectations and are subject to various risks and uncertainties are actual results may be materially different for a summary of risk factors associated with are forward looking statements. Please refer to today's press release and the second in our latest Form 10-K entitled risk factors and forward looking statements.
It's made during the call or being made as of today and we undertake no obligation to update or revise any forward looking statements also unless otherwise noted financial measures discussed on this call will be on a non-GAAP basis. We believe these measures are useful to investors and the understanding of our financial results.
Reconciliation of comparable GAAP financial measures can be found in our earnings press release and in our filings with the SEC A lot now like to turn the call over to Alex.
515, and welcome everyone.
I am pleased to report another quarter of strong operating and financial performance.
Second quarter of 20th twenty-three alchemy grew revenues 30 per cent once again.
Expectations, we actually recorded with 15.8 million lie registered users on the athlete platform.
2.5 million compared to the priority here and we achieved a 2.5 million dollar adjusted EBITDA loss better than the high end of our expectations for the quarter.
During the second quarter alchemy continued to execute with a consistency that has characterized our business for over a decade and recently as a public company.
Sure I'd be over in the second quarter of 2021, the number of registered users on our digital banking platform is up almost 50 per cent or quarterly revenue is up.
79%.
A R is up 78%.
Our consistent growth and I'm bleeding improve it has occurred.
<unk> true, both low and rising interest rates and various economic and political cycles.
The spring banking crisis in which street midsize U S banks failed.
During a natural global pandemic.
[noise] consistency gives us confidence in our revenue growth targets and our ability to achieve a 20% or better adjusted EBITDA margin by 2026.
Oh for me is able to achieve a level of consistency and performance they disappeared and most probably sales companies because of the unique attributes of our business.
These include the mandatory nature of our products.
Sounds a hell of a calm quiet inside that draws renovation.
[laughter].
Model and the culture of our company.
The first reason for consistency is that our target market considers digital begging to be a mandatory innovation.
And every piece of research we conduct the number one decision criteria for selecting a new financial institution.
Quality of the digital experience.
The top 2000 financial institutions in the United States understand this.
Pursuing a modern digital sales and service channel.
But because of their smoking backing adoption is getting faster than computers mobile phones or the internet.
When I talk with clients or prospects. They told me three things you're driving the increased pace at which they are investing in digital banking.
First the pandemic push virtually 100 per cent of their customers to become familiar with spiritual banking.
Second there are new entrants in the market funded by billions of dollars of venture capital that showcase modern.
[noise] to use technology in third hour Mark it as aggressively pursuing millennial in Genesee consumers, who have grown up with a digital first mindset.
The closest analogy for what is occurring is what we saw in the mid to late 2000. When companies finished major back office and best friends and E. R. P systems like S. A P.
[noise] began investing in customer relationships systems like Salesforce.
Getting platform such as Adobe.
The average financial institution in our time is 80 years old.
Technology investments have historically been allocated to their legacy back office systems.
[noise] rotating that investment into a modern operating platform that integrates to their core back office system that allows them to interact digitally with their customers to shell serve and improve their customers experience.
A modern digital sales and service platform as soon as the basic requirement for a regional or community financial institution. They didn't tends to be a healthy ongoing business.
Based upon how research over the past year. The digital banking platform is the most important item to a consumer selecting a bank or credit Union and ranks about customer service convenient atriums inconvenient branches.
It's the most highly correlated attribute to overall bank or credit Union customer satisfaction.
It's the top reason, a small or medium business is likely to consider their bank or credit Union.
Primarily financial institution.
And it is directly correlated with higher consumer product penetration.
For these reasons 71 per cent.
Regional and community financial institutions find a digital sales and service platform like dwarf or buy alkylate to be appealing.
The second reason for consistency is there a market is healthy and growing.
Well, we became a public company. We stayed at our luggage consisted of 185 million digital users of wish even with all growth we were today sure even less than 10%.
That market has continued to grow in the mid to high single digits as each of us have multiple financial institution relationships.
Consider just one aspect of our market.
Until about 10 years ago, if you move to a new city and that's it he didn't have a branch of your existing F. I you probably open a new account close your old one.
When you move you might open a new account and you probably keep your old account.
Sure. It shows that the average consumer has 1.7 banking relationships for a debit card or checking account.
Jim Z that number increases to 1.9.
This creates growth strategies for a target market that never existed before.
It's also evolving a primary financial institution is defined by consumers a few years ago that was determined based upon where the consumer had a checking account our shirts shows that it's shifting to where the consumer does most of their digital banking.
As a result of this dynamic many of our clients are creating digital first growth initiatives within the past they would have led with a branch investment.
In addition to the growth of the market spending on digital banking technology remains resilient.
Even in the wake of the banking crisis in this plan.
89 per cent of our target market expects technology, but just to remain the same or increase over the next 12 months.
The third reason for consistency is that we exist to help our clients compete with the digital capabilities are mega banks and given the criticality of this element up their business strategy, we have the ability to meet with any level and any function on our client base.
At this level of intimacy gives his first mover advantage and developing new market opportunities, which is Y R. R. Boo has grown 20 per cent central I P O.
An example of this is our entry into the commercial banking market.
Five years ago, several of our larger credit Union clients, we're expanding into business banking and they asked us to develop capabilities for them too.
Today, we can deliver a business solution to 99% of potential clients. So far I'm 20, twenty-three. We added added another six thanks to our client roster, including the larger stack when in our history.
To converting to the alchemy digital banking platform. This bank is deploying a full suite of alchemy products, including sediment digital account opening an a C. H alert, we now have twenty-five banks under contract.
Another example is the segment acquisition.
For my own exception alchemy is captured them atomized transactional data because we believe in the power of that data to help our clients interact more personally with their customers and members.
But for many years only a handful of early adopters took advantage of this capability.
Recently the.
The combination of digital transformation and financial institutions that are pursuing a digital only growth strategy has moved the use of data from early adopters to the broader market.
For example, last Tuesday, I met with the executive team of a prospect that is that historically was focused on five counties in one state in the northeast and now has a growth strategy to expand nationwide through digital first approach.
The main topic of conversation was their desired use of data to attract and grow customers digitally.
That our research shows that 84% original in communities F. I want to leverage the data in their digital banking platform for more sales growth why because 73% of consumers say that personalised product recommendations would make them more likely to trust try a new product from.
And or recommend a financial institution.
But it was the broader market began focusing on their data strategy. They gave us feedback that her legacy data platform was challenging to adopt and they let us know the smaller technology company that had mastered the ability to simplify the use of data analytics and marketing for regional and community F eyes Dark company with Shetland.
And we were very pleased with the acquisition and the pace at which we are adding new standalone clients.
And the bundling of our data capabilities with new logo wins.
Here's how added innovation plays out in terms of add on sales it's.
Our average client is halfway into a six year contract that means the initial solution was proposed in 2019 when.
When you consider the innovation that's occurred in the last three to four years and they'll need to compete we don't have to force an add on product conversation.
In fact within our target market lack of awareness of new products as it is the top barrier to a financial institution adopting add on products root account management executive relationships and product education goes a long way towards driving our continued growth that is why our accumulated a O L.
Spansion is two times, among the 2018 and 2019 cohorts.
The girls equation for alchemy is simple.
Registered users turns revenue per user.
The fourth reason for consistency is it we have multiple levels to work on this equation.
First we can grow by adding clients we've been doing this for years and the credit Union market and are now making progress in the bank market.
We win as our clients were Meanwhile, revenue grows as our clients expand their <unk> their customer account base and add registered users to their digital banking platform.
Regional and community if I continued to add customers and our clients tend to grow faster than the industry average.
In addition, when selected as the digital banking provider, we were starting a longterm relationship with our clients on average 70 much.
This long term relationships reduces our attrition rate and equally as important provides us an opportunity to expand the radiation relationship to our clients adopting additional products. This occurs during the contractual term and at the point of renewal both driving a higher <unk>.
Finally, since our clients tend to be on the acquiring side of M&A transactions would benefit from M&A in the marketplace.
The result of our growth algorithm is a model with multiple letters that can work at different tempos affording a high degree of visibility and support continued growth performance.
The final driver of our consistency is the ultimate culture.
You don't show a six year highly complex user disrupting solution to an 80 year old financial institution, unless you have values deeply embedded in your organization.
Values of client first.
Longterm orientation around innovation and conservative business practices that are aligned with your clients.
Our commitment to culture is how we established the leadership position among credit unions over the course of a decade, we built our business. The same way they built theirs survey and innovating on behalf of their customers and members rather than our own agenda and.
That's why we're not winning among banks.
Enclosure.
I'm proud of our continued consistency in the second quarter.
It's a result of good people good products and good execution in a business, where the Margaret considers our products to be a mandatory innovation.
It also helps that we have a large town that continues to grow.
Client relationships that give us a front row seat to see new broke it opportunities business model with multiple growth levers and a culture that understands the client is the Northstar and.
And now I have to call to Brian just take us through the numbers. Thank you Alex and good afternoon, everyone. During the second quarter of 2023, we delivered another quarter strong financial results. We continue to see strong demand for digital transformation, including a higher adoption rate of the products offered through our platform.
The served.
Our clients.
Users for the second quarter of 2023, we achieved revenue 65.8 million, which outperforms the high end of our financial guidance and represents growth of 30 per share.
This was driven by a barrage performance across our primary revenue drivers. We implemented 12 requires from the quarter bring our additional banking platform.
218.
40 clients in our implementation bachelored, representing $1.5 million Detroit users.
We actually have the quarter with 15.8 million registered users while I have on our digital banking platform, two and a half million or 19% compared to last year and up sequentially 730000 neutral users over the last 12 months.
User growth continues to be driven by two areas first we implemented 38 financial institution supporting $1.5 million digital users.
Our existing clients increased third digit or user adoption by $1.3 billion users offsetting distraught user growth, which churn interest over 300000 visual users.
The majority is represented by a single fire that transition off our platform during the third quarter of 2022.
We continue to maintain a very high grocery retention rate of approximately 98% measured in terms of a R. R and destroy used to retain over the last 12 months. We ended the quarter with an R. P U a $16.20, which is 6% higher than last year driven by adderall.
Sales success, and the addition of new clients <unk> onboard with a higher average R. P.
Subscription revenue grew 28% compared to the prior to your order and represents approximately 93 per cent of total revenue we.
We increased <unk> by 26 per Sir and extra of the second quarter at $257 million.
In addition, we currently have approximately $48 million a year are in backlog for implementation over the next 12 months we.
We continue to see healthy demand across our product portfolio.
Or of yourself performance for the first half of 2023.
2022 by over 75%.
First half of the year, we started 16 do digital banking platform parts of which 10 were signed during the second quarter or new local client and that should reflect strong representation from banks was six five so far in 2023.
Or add on cells focus continues to yield results as well compared to last year or add ourselves effort resulted in 27% higher total contract value as our client base additional products across our 10 product family categories.
In addition to add on cells are client sells street was responsible for private contract renewals.
The first half of 2023 re renewed five client relationships, where were you raised the <unk>, our our run rate just over 11% through a combination of new product cells and a higher minimum contractual commitment.
We expect to renew over 20 clients during 2023.
And finally, our remaining purchase obligation or contracted backlog represented $967 million as we exited the second quarter, which is 39% higher than a year ago.
An alternative gross margin profitability.
For the first quarter of 2023, non-GAAP gross margin was 58.7% representing 70 basis points of expansion when compared to the prior year quarter.
Harbors.
Our near term operating model is non-GAAP gross margin of 65% as we scale our revenue <unk>.
Also we expect to achieve a gross margin of approximately 60% during Q4 2023 as we exit the year.
Operating expenses for the first quarter of 2023.
Darn gap R&D experience was $16.9 million or 26% of revenue 200 basis points lower than the year ago quarter.
Bars and expansion was primarily driven by revenue skill as we've increased R&D expenses at a slower pace than our revenue growth as.
As a reminder of our target operating model is to leverage R&D to 20 per cent of revenue, while we continue to invest and expand our platform.
non-GAAP sales and marketing expenses were $12.1 million or 18% of revenue in the prior year quarter sales or marketing expenses represented 18% of revenue as well or.
Annual <unk> conference Kovalev occurred during the second <unk> Ah both years, driving a higher expenditure revenue ratios and other orders of the calendar year.
For the full year 2023, we would expect ourselves a marketing expense to revenue ratio do fault was 16% a slight improvement from four year 2022.
non-GAAP general and administrative expenses was 12.7 million or 19% of revenue.
In the prior year quarter, G&A was approximately 24% of revenue.
March and expansion is primarily attributable to revenue scale as we closely manage DNA expenses, we expect a further leverage expands as it.
Percentage of revenue as we move towards our profitability objectives.
Our adjusted EBITDA loss from the second quarter was two and a half million dollars, which is better than the high end of our expectations and less than half of the loss we incurred in the prior year quarter.
We expect to be adjusted EBITDA positive starting in Q4 2023 as.
As a reminder, we've established 2026th adjusted EBITDA margin objective of 20%, which coincides with the achievement of our 65% gross margin go now.
Now moving on to the balance sheet.
We ended the quarter with just over $176 million of cash and marketable securities and just under $84 million of debt.
We were comfortable with our net cash position as it represents several multiples of capital necessary to reach free cash flow positive, which we will achieve a few quarters after becoming adjusted EBITDA positive.
Related to our capital structure during the second quarter, we amended our existing credit facility. The amendment among other things increases the amount of the revolving loan commitment by $20 million with Citibank, joining as a new lender and extensive maturity day for one year or two April 29th 2026.
File an 8-K on June 28th that provides additional information regarding the amendment.
Now turning to guidance for the third quarter of 2023, we were providing guidance for revenue in the range of 66.5 million to 67.5 million and an adjusted EBITDA loss of $1.25 million or $250000.
All year 2023, we're raising our revenue guidance to arrange a 261.5 million to $264.5 million, representing revenue growth at 28% to 30% and an adjusted EBITDA loss of 4.25 million to 2.25 million.
This compares to an adjusted EBITDA loss or $17.6 million for the full year of 2022.
In closing we are thrilled with our continued progress in the solid financial performance. We are delivering we are well positioned to capitalize on our unique business model attractive market, an exceptional product offering and we believe these will continue to fuel our success going forward.
With that I'll know hand, the call to the operator for questions.
Thank you we will now begin the question and answer session.
You ask the question <unk>, Sorry, then one on your telephone keypad.
If you're using a speaker phone please pick up your handset before pressing the keys.
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<unk> okay.
My first question comes from Patrick.
Kennedy. Please go ahead.
Oh, great and uhm congratulations on the on the continued execution I I have two questions, they're sort of related to the the demand environment, what your and your customers. So Alex the survey sounded really interesting could you just repeat that and maybe break out for us.
How many were.
<unk>.
And then secondly, I'm wondering what the customer base is thinking in terms of demand for Ah Jen E I driven type of solutions.
Yeah the.
One of the things I said in the script Pat was.
9% of the target market expects technology budgets to remain the same or increase over the next 12 months. There are a lot of data points in there, but but basically we haven't seen any.
Fall off and the focus on was just call. It digitizing the front of the house for the financial institutions. So that continues to be continues to be a priority.
The area is that people are interested in in a I within a financial institution would be really three areas. One is around security Ah. We continue to work with customers on a brand new threat vectors.
In terms of either trying to penetrate an account or had any kind of account takeover. So anything that can help our customer.
Through any kind of pattern recognition determined that they've got a new threat vector or they're getting hit with a threat is something that's that's interesting to customers anything that can help them.
Read the transactional data that they have and.
<unk> opportunities to increased revenue or increase retention of there.
Consumers or customers, we've we've actually just Ah released a.
Call it like a.
It's a it's a capability that the customer can use themselves.
To compare the economic benefit of what they have in transactional data in terms of being able to get people that are paying mortgages to another financial institution and maybe provide them an offer we we've provided a tool that allows them to see how there.
Performing in the use of their data versus there pier sets in the industry. So any kind of use of Ah artificial intelligence or any kind of learning against their transactional data that improves business performance is interesting to them and then anything that in their <unk>.
Bullshitter right the call Center continues.
Ah sources, you know other expense and investment for a financial institution and.
And anything that they can do their so those are the three areas past security the use of data and in the interactions with their customers and members.
Ah that's super helpful. Thank you.
Our next question comes from.
Definitely.
Tomato. Please go ahead.
Hey, guys, it's actually spam on for my own. Thank you for taking my questions. This afternoon nice results here.
Could you guys dig in a little bit more into the add on sales success. You guys had this quarter and maybe you know talk a little bit about how 'bout stacks up relative to last quarter, if that changed at all.
Sure. So the add on sales team as you're probably aware there was a team that was created in 2019 and our ultimate goal from our ourselves seem which we refer to as client sells as.
As to the river, a 50% of our total contract value your ear, you're and you're out from that team presently we've been running in the call at mid 30 per cent of the total contract value maybe as high as 40 per cent is a total contract value or rich abated and then so.
That's occurred here today, and 2023 from quarter to quarter.
<unk> from that team has been pretty even and consistent what can cause some variability from that team is the number of renewables. They may have in any one quarter year today. So far through 2023, we've had five renewals as we mentioned in our prepared comments, but we expect to have 15 may.
As many as 20 renewables in the back half of the year. So we expect a lot of productivity coming from this team in the back half of the year areas, where we're seeing some good cross-sell adoption from our client base continues to be and this is a.
True for 2023, as well as 2022, but our money movement products are security products in our marketing and analytical products.
Right. That's that's Super helpful. And then just a quick follow up on M&A, Yeah I know.
It's been a little while since you guys did the second acquisition then.
No. That's that's worked out pretty well for you guys by the sounds of things. So I guess, just curious what the appetite for emanated today, and maybe any potential areas you guys would look to target.
Yeah, So we view.
A as a part of our strategic product roadmap along with some of our third party IP partners and so we're we're evaluating what's available but it has to fit within our product roadmap it has to be our financial.
Model requirements and then also it's a capital allocation decision that has to be a good return of capital.
What we're finding.
Today in today's market is while it's starting to occur.
The devaluation expectation for Gilman, a is still yet to catch up to where the public equity markets or at a meeting rethink deals out there that are attractive or still a fairly expensive. So.
So we're just image.
Writing a lot of discipline as it relates to eliminate them worry.
Reevaluate our third party partner pipeline, which can be a source of eliminate for US a couple of our acquisitions actually came from that group of partners. We've completed so far.
But that's that's the way, we think about it and where the market is today and we didn't yield the right calf return areas, where we would focus on really fit in to some of the same areas, where we're seeing some add on sales success. So the fraud security area would be of interest for us Some continued extension.
And a products within financial willing us would be interesting for us as well as marketing and analytics.
Yep got it okay.
Thanks goes nice border.
Good afternoon, and thanks for taking the question.
Alex you talked about the data platform that you have but can you just go into a little bit more with the opportunities are as you think about your roadmap your product roadmap over the next couple of years.
If you think about Ah bank trying to interact with their customers digitally.
It's the same as.
Any other generalized industry, who wanted to interact with their customers digitally and so to do that you need several different elements of the platform right you need a great C D P or customer data platform, you need the ability to develop content and distribute content.
You need the ability to Ah Ah to plug into any kind of Ah Ah automated delivery of messaging Ah you need to be able to report on the the results of your campaigns. So so anything that you and I might think about in the general law.
Is marketing technology stack of C. D P marketing automation content management.
Integration into AD networks campaign Ror reporting.
All of those capabilities are.
Going to be necessary in a microcosm for regional or community financial institution.
To.
Engage in a digital channel in the same way that they engage in a branch and it.
The market understands that with the market's been looking for is a set of technology that can be consumed by the the skill sets and the skill level that exist inside a regional and community financial institution. So hopefully that gives you a sense of theirs.
There's.
A lot of different vectors that we can go in in terms of providing technology for a financial institution. The summary, I would just tell us. These financial institutions have succeeded because they have a personal relationship with their customers or members and.
They understand that the digital channel is now becoming very important and what they want to do is replicate the the quality of the personalized relationship that they've had in the branch they want to replicate that Ah digitally and it's not something that we have to we don't have to sell them on the idea.
They they understand if they want to do it and and so that's the wide range of opportunity that we have in front of us.
All of those kinds of capabilities.
Right Santa.
Alright, Thank you for that and then just one last one.
You talked about the renewal outlook for this year, how does the renewal outlook for 2024 luck compared to 20 twenty-three. Thanks for taking the question.
If you look out over the next several years <unk> dual pipeline is about 10% of a or or each year, it's pretty consistent for the next two to three years that could depending on the size of the clients that are redoing in those years, it could be more or less than the 20 client.
Or so that will renew this year, but it is around 10% of a R. R.
Thanks for taking my questions.
Alright next question comes from Jesus <unk>. Please go ahead.
Yeah, Hey, guys. Thanks for taking the questions congrats on the corner.
I just kinda wanted to touch on the the two times they are our essentials.
Among the 2018 $2019 with 2020th 2021 cohorts are you starting to are you seeing the similar kind of trajectory best Eugene.
With a solution I'll take within the 20th and 2019.
We are and so in fact, the increase in each of the individual cohorts truly being driven by two things and then this was the beauty of our financial model, because we're not overly dependent on any one lover, but which driving it.
Historically has been our clients growing their users.
Then as I mentioned earlier in the Q&A session in 2019, we create our clients sales team and they're gaining a lot of momentum cross selling into our client base, which is now adding another component that's driving our expansion within each individual cohort, but if you look at 2000 22002.
Any one there between 150 and 200% expansion from their original contractual networks.
Okay Awesome, maybe just kind of touch on.
The pipeline did you kind of break out the.
Bank vs.
Credit Union.
And the implementation backlog.
Yeah well.
Well not in the implementation backlog we haven't.
Well I can speak to that so we have twenty-five bank clients under contract Ah, which Chen or alive and 15 are in the implementation backlog are total new logo implementation backlog as.
$34 million of the 48 million represented by close to 40 financial institutions as it relates to ourselves pipeline Ah banks now represent just under 40 per cent of our total pipeline our pipeline is higher than it was at this point in time last year.
Continues to grow year over year at a nice healthy pace, and then which provides a scrape visibility into our future yeah cells that we close that leads to our implementation and pipeline and ultimately revenue. So Ah revenue visibility on into 2024 is now developing at a pretty nice pace and as I mentioned and.
The prepared comments here today are new cells, or 75% plus over 2022, which is pretty fantastic in this market.
Yeah, that's great. Thanks for the color congrats on the corner again.
Alright next question comes from <unk> <unk>. Please go ahead.
Okay, Hey, guys. Thanks for taking my questions here, Hey, Alex Hey, Brian How you guys doing.
Good rates accurate.
Excellent and Alex <unk>, maybe for you maybe maybe building on that last question great to see the bank wins, so far this year and and just not coming through the pipeline. Maybe maybe the question is can you just remind us how the profile of a bank when compares to the profile of.
Credit when for example is it is it may be higher users with with the bank contract or is it higher <unk> anything on sort of how the profile of the bank contract win versus a credit union contract when that'd be really helpful to understand.
Yeah, I would just generalize it to say that the contract value between a bank in a credit Union.
Is likely not that different in the credit Union you were going to have a lower or poo and more users because of the retail focus and then in a bank when because we add in some you know some of our higher Ah Ah price products will end up with a lower.
<unk> number of users, but a higher <unk> and you know Brian I Dunno, if you've got any specific examples, but just generally think about it as.
Ah crossed the Tam.
The a C V or the E R or per customer is going to be pretty consistent.
Credit Union lower our Boo iron number of seats bank higher or lower number of seats, yeah, and if you look at our implementation backlog, which today as I mentioned in the last question is 40 financial institutions 15, which are banks.
D. R. P U for all 40 financial institutions and the new logo backlog is around $24 credit.
Credit unions are at $22 and banks are at $30. So that gives you a sense of the RP you difference in some respects that's because of 100 per cent of the banks have commercial banking generally as as a product and I'm on average it's about 60% of the credit unions may have commercial banking and as Alex mentioned.
Generally banks will have fewer users, but Alex did call out in his prepared comments that we signed our largest contract value our bank client this quarter and it just so happens that client has over 150000 digital user so that that's a little bit.
A an exception in terms of the number of users that a bank or have this was an eight year deal. They took 21 products. It was a competitive deal with a few names that you would be very familiar with out there that we compete against and and we wanted that do and we're super excited about it.
That's great that's great and congrats on that when Brian maybe maybe for the for the follow up for you. How do you. How do you think about sort of the the user adhere in the back half and and maybe just you know just the different components.
In terms of how many are coming from backlog time, they were kind of coming from from sort of growth and and whether there was any sort of seasonality that we should think about in that net at trajectory.
Yes. So every year I mean, it's very different there's not really seasonality to our businesses more about the timing of when the new logo Windsor curve about nine to 12 amount months before the implementation, but a year today, we've implemented from new client.
Well just under 700000 digital users I would expect unless we have an implementation that could slip out because it happens from time to time, we should be somewhere around call. At 800 850000 digital users that will implement in the back half of the year with a lot of concentration in queue.
<unk>.
As it relates to our clients are growing their digital user base. Just so I could continue that hundred thousand you know digital users a month is the way that we think about it we're a little over that year today through June 30th I would expect will add somewhere in the neighborhood of 600.
<unk> 650000 in the back half of the year.
Got it very helpful. Thank you.
Our next question comes from childhood.
<unk>.
Please go ahead.
Good afternoon, and thank you for taking my question. My question is on M&A and the impact it could have on your business over time, obviously consolidation activity is is pretty slow right now, but as we.
<unk> near an end to the rate hike and presumably a soft landing hopefully I was curious if that's become a topic of conversation with your clients and if so could potentially be a catalyst for investment in technology as as some of your clients prepare for another M&A cycle.
<unk>.
Eh.
Fortunately for us.
Our customer base.
Tends to be their customers that are more digitally advanced.
Thinking about invest if if you think about an alchemy customer is somebody who is has by definition.
Decided that they are going to have best of breed technology, and they're choosing best of breed technology.
Ah because.
Technology is part of their growth strategy.
So these are the customers that tend to be the acquires in in M&A environment.
And so what are the things that was in my prepared remarks is is what we've seen so far is that the M&A.
Transactions that have occurred had been of benefit to us because our clients have been the ones, making the making the acquisitions. So once again, there's there's almost 10000 financial institutions in the United States.
We target the top 2000 financial institutions in the United States and they tend to be the acquirers of the smaller institutions that are not being not being competitive. So in general we think of M&A in our market.
As.
Being good for us and and the other thing to think about is and I know I'm, telling you stuff you already know, but yeah, we price per seat right. So the overall number of seats, even if M&A is occurring in the United States is not going down.
And it continues to grow and if Ah fitting.
Financial institution is buying another financial institution, they're not <unk>.
Buying them because they have the same customers they are buying them because they want to grow so.
Pricing model also helps us and the M&A environment, because we price by number of seats, you know not necessarily a huge platform fee that Ah that's charge to an individual financial institution. So in summary, M&A is good for us.
Got it.
And I I apologize for missing your comments earlier I hop that's great.
Apologies in advance if you've addressed this one as well, but wanted to get your comments on the competitive landscape with.
Private private been tax more focused on profitability and funding drying up I'm curious, if you're seeing anything different in the competitive landscape and and you know Conversely, if you're seeing any different behavior from from the larger guys you compete against as well.
Not really I mean, if if you think about it if if somebody is going into a first of all as you know how to present replacement market. So we don't ever go to our customer and go we have this cool idea around digital banking and they go Oh My gosh, Yeah, I've never thought about that so the.
The.
The primary wins continue to be against legacy technology that is not providing the types of digital and sales and service platform that against that the institution. Once so by the time that somebody is starting an evaluation process, which can take a period of time they've.
Already decided that the legacy technology that they have is insufficient for their business needs. That's why they have kicked off a process that process in any case. So there's there's good competition in the marketplace. We all can.
Compete honorably with each other but really what we're primarily doing is replacing legacy technology and once again to reiterate you know when we launched her idea. We said the market was 185 million users art or target market that continues to grow.
No and even with our growth we are still serving less than 10% of that Ah of that market. So I think the good thing about this market is there was a there was a couple of folks that can't compete really well in this market and and grow nicely because there's there's a lot of legacy technology to replace.
Yeah, and I'll just add a couple of comments to Alex's commentary. If you look over the last two and a half years on a run on a wind right from a wintry perspective at a R. R. That's up for grabs him work consistently winning and that 34% 35% of the <unk>.
Or that were competing for that was consistent and 2022 and it's been consistent and year to date 2023, as well what's interesting and that is as it relates to credit unions very consistent and it actually we're probably a little bit on the higher end of that number and 2020th.
We're approaching 40 per cent of the E R or that we've been competing for now with what I find even more intriguing is our win rate for banks is increasing but more importantly, the number of bank deals that were competing in that's increasing as well so there's a law.
Marketing effort.
A lot of marketing energy focused on increasing our share voice and the marketing Subsecond subs sub segment of the market that we're going after so that's just a little bit of flavor on how we're performing in terms of when right as it relates to the AOR that were competing for each of these deals.
Got it.
[laughter] collar guys nice corner. Thank you.
Alright next question comes from Dan.
<unk> with my account. Please go ahead.
Mmm.
Daniel on for Jeff just first of all just kind of on the seals motions for banks, where do you guys think in terms of the go to market in terms of its that refined in terms of the pitch is that.
You guys had a town yet or that need more working on refining the pitch and then kind of he was looking forward to where we're at so it looks like if I. If I was going to the findings of banks in the first half twenty-three versus about signing.
Signing first have 22, just what are you guys thinking in terms of the bank adoption curve.
This you know steady slowly calibration is there a point at which is a critical mass or inflection point is how.
How how should we think about that kind of adopted me.
Yeah. This is Alex I'll take the first half of the question I'll, let Brian take the second half of the question in terms of the sales motion.
In Q1, we identified 12 specific skill sets that you know.
You can't learn to swim in the front and the front yard right. So we we started making progress in the bank market. We started engaging with bank prospects. We started winning some banks and then through that we started seeing okay actually and I would I would kind of extended to not just a sales motion but to say from this.
Sales through the implementation.
Motion.
You.
What have we learned and as I was saying really we we learned there there were tell 12 specific skills that we needed within the organization and then we set a goal for ourselves to Ah bring those skills onboard in the second quarter, and we were able to bring those skills on in the second quarter and then Brian .
The other question the second part of the question was related to.
You know how do we see the you know adoption of banks moving moving for is it going to be in the same ratio that we have right now is that ratio gonna change, yeah, I mean longer term.
We think that will remain.
At our current level of competitiveness for credit Union. So we will continue to win between 30 to 35, maybe as many as 40 credit unions per year.
Once you get to 2026 and beyond we would expect to win the same number of banks. So last year. We won 11 banks. This year year to date were up six with a building and strong settles pipeline. So I suspect that we're going to do better quite a bit better than that 11 that we signed last.
Here in the next year. It will continue to increase and then as soon as we reach out to 2026 and beyond who will be at that 30 in terms of number of banks that were winning each year, which would be a commensurate amount.
As to what we're waiting on the credit inside of the market.
That's that's a great color and then just kind of maybe speaking to the go to market Mmm in terms of sales capacity, maybe just for five minutes on how many <unk> now and you know whether that's a good amount of expecting to feel that up when it might be by the end of the year.
Yeah, we don't really disclose the number of sales reps that we have you know in terms of total sales team you know we're in that kind of the 60 to 65 S. T D's and so they include sell sports those engineers as well as Ah direct sales reps for new logo and.
Client sells but when we do go to market, we do have a hunter and farmer mentality, meaning we have a new logo team. We have our client sells team that's responsible for renewals and cross-sell and then as it relates to some of our acquisitions will have a few sales reps that are more of a specialty sales rep variety.
As it relates to those individual products because they may have some uniqueness to now and then it also helps them support and ER drive sells through those other teams by having the sales specialist involved I I will say just one AD on comment with Brian what are the things that we really like about this business model.
Is if you look at a company like an alchemy versus generalized.
Generalized Ah <unk> company and a generalized company you have to spend you know maybe 30, 35% of revenue on sales because you have to stimulate the market with the with your sales organization. So is your growing revenue.
You were actually having to add sales expense.
Ahead of time to make sure that your.
Pushing the market for lack of a better term, but obviously in a highly verticalize sash, Oregon type of industry and then if you go deeper than that.
Thing that's great about our industry is it's really an industry, where you can really do account based marketing because think of all of the data. That's published about every single one of these institutions what they have to have published to the government and so what you would normally have to do to leverage your marketing Oregon.
A nation to drive demand.
And a lot of cases is really hard because of the the lack of data about the industry, but here the data is there.
So it allows us to utilize the marketing organization in a much more targeted manner than other kind of go to market situations, which allows us to keep.
Sales headcount frankly.
Frankly, lower than a lot of other SAS models.
That's a great color. Thanks, so much for taking my question, then and congrats on the Great Court.
This concludes that question and answer session and I'll call him Princess All set now completed thank you for attending to these presentation you may now disconnect.