Q3 2024 Alkami Technology Inc Earnings Call

Good afternoon ladies and gentlemen and welcome to the Alchemy Technology, third quarter, 2020, 4 financial results conference call. At this time, all lines are in listen only mode.

Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.

This call is being recorded today, Wednesday, 30 at the Voktober 2024. I'd like to turn the conference over to Steve Calk, Vice President of Investor Relations. Steve please go ahead.

Thank you, Operator. With me on today's Colour Alex Shootman, Steve Executive Officer and Brian Hill, to some mental officer. During today's Column, they make forward-looking statements about guidance and other matters regarding our future performance.

These statements are based on management's current views and expectations in our separate various risks and uncertainties are actual results may be materially different. For some, we have risk factors associated with our forward-looking statements, please refer to today's press release in the sections in our latest 10K and titled Risk Factor's Import Booking Statements.

Stamets, majoring in the caller being made as of today and we undertake no obligation to update or revise these statements.

Also, in my side of why stated financial measures discussed on this poll, the Unknown Gap basis, we believe these measures are useful to investors in the understanding of our financial results.

A reconciliation of the Comfortable Gap Financial Mesters.

and be found in our earnings press release and in our filings with the SEC. So now I'd like to turn the call over to Alex.

Alex: Let's Steve!

Alex: I am pleased to report another quarter of standing performance.

In the first quarter of 2024, I'll be grew revenue 27% and extended the Jesse Berenzo over $8.3 million. Both ahead of expectations.

We had nine new digital banking clients, including three banks that launched 12 clients on the Alcran platform which ties a previous record number of client launches in a quarter.

Alex: In addition, during the quarter we were recognized by several third parties as we continue to establish ourselves because the leading digital banking platform.

And if I navigate or listen to Alchemy, as the top digital banking provider and credit union market share based on the number-than-roll mobile users.

We were named as a 2024 SymmTex Pop solution provided by IDC and included on CNBC's 2024 World's Top 10 Tech Companies List.

Chair of Chief Name, Malcolm East, best sonking up. Malcolm East became the first digital banking solution company to be certified by JD Power for providing clients with an outstanding mobile bank plan for experience.

New York's experience, accessibility, availability and broad functionality are reasons why clients have selected out for me.

More recently, I want ability to create value with our data technology, to become a different shooter for welcoming.

Alex: With our data and marketing products included in the production of a 60% of our new client wins in 2023, moving to over 70% so far in 2024.

Alex: These products have also generated over 20% of our add-on sales today in 2024.

Alex: During this call I would like to spend a few minutes describing what data is becoming a different year in the world.

Chief of Banking has been a service platform for consumers. She does not want to go into a branch to manage their money.

It also showed to reduce costs for financial institutions by shifting interactions from human to digital.

Today we are seeing our market accelerated the adoption of digital revenue generating strategies in addition to using digital banking as a service channel.

Alex: As these financial institutions implement digital revenue efforts, to realizing that data is the oil that makes the revenue engine run.

Foot Jam, Follow the search shows that.

We're just deploying modern data capabilities along with predictive AI, grow two time spots through the profiles that don't apply to these technologies.

Our market knows they have relevant data to drive revenue strategies, but their data is trying to access and analyze.

Alex: For instance, in 2024, the late banking and capital market survey 92% of FI data users and leaders say that data is unavailable or takes too long to retrieve.

and over a half respond of that when the data is there they don't have the technical capabilities to make use of it.

Data must be quenced and contained normalized and curated. Ultimately, data and marketing solutions have these four characteristics at scale.

A big platform contains 29 million deposit accounts with 20 billion historical transactions and about 20 million new transactions are added each day.

Alex: FIs early in the day of joining communities, data capabilities to close the application of the bank, we're already investing in data technology and data science chains.

That's why starting on a path to predict today I can use one of our 12 AI models to generate revenue, improving engagement, to retain customers with models built for the compliance requirements of our industry.

and the FIZ that need marketing technology in addition to data and models can use Alcumree's full funnel market stack that covers digital channels, including the digital bank in channel, web, and email, and measures ROI for each campaign.

I'll come in offer three plans within our data marketing solutions, data insights, predictive AI, and full-stone marketing.

These plans are designed to make the needs of the regional and community FI market and help these institutions achieve their gross strategies such as to have a leader positz, loans and non-interstintor.

Alex: In 2023 alone, Alcory's data in marketing clients generated $4.5 billion in CDs, $525 million in money market accounts, and $391 million in savings accounts.

Alex: In addition, our clients use these capabilities to generate $1.8 billion in home equity loans, a $1.7 billion in mortgages, $1.4 billion in consumer auto loans, and $903 million in commercial loans.

Alex: It's been exciting for me personally as I've set through executive meetings in which we show clients revenue opportunities with their live dating, including for deposits.

We're going to identify transfers where investment dollars are going, trial deposits to show when new accounts are opened elsewhere. We're correct talks, we fund so that the FI can keep those in their institution.

So landing, we can identify where account holders take their mortgage, auto loan and credit cards.

Merchant Processing, Commercial Living and P.O. can all be identified in place in the hands of commercial relationship managers to drive new business opportunities.

Beyond our current capabilities, we see a future in which we can combine our data technology with digital banking to provide real time revenue opportunities.

Alex: Go and search.

If an advice customer attempted to digitally move money from the FI's who have real Guru's account, the FI could ensure a targeted offer for a highly-infested account complete with a pre-approval and instant account activation.

Alex: Or if their customer tried their established new bill payment for recurring subscription, if I could prompt the customer to use a rewards-based debit card instead, generating new interchange revenue, and transfer me bill payment from a cost item to a revenue source.

Alex: The Morify's Redes friction and revenue generation, the more they worry about fraud. And we've also run successful experiments in which we use our data scale for our real time insights into proactive fraud detection.

The success of our data and marketing solutions today.

Alex: Combine with an increase awareness within our market as a power of data to drive revenue activity, gives me confidence that our data capabilities can be a long-term differentiator and growth driver for Alcame.

In closing, 2023-24 was another quarter in which Alcemy demonstrated continued execution towards our target operating model. And the long-term goal we have, be the number one digital banking platform.

I'm now in the call to Brian to take us to the numbers. Thanks Alex and good afternoon everyone.

Brian: In the third quarter, we continue to affirm on the top line and profitability. We achieved total revenue of 85.9 million, representing year-we-year growth of 27%. The description revenue also grew 27%. And represented over 95% of total revenue.

We increased ARR by 24% and extra the quarter at $342 million.

Brian: We currently have approximately $46 million at ARR and backlog for implementation, the majority of which will occur over the next 12 months.

We implemented 12 new clients in the quarter, bring our digital banking platform client count to 266 clients.

Also, we have 36% clients that are implementation back, presenting 1.3 million digital users.

We extra the quarter with 19.5 million registered users on our digital banking platform, up approximately 900,000 sequentially and up 2.6 million or 15% compared to last year.

Over the last 12 months, we implemented 37 financial institutions supporting 1.2 million digital users. In addition, our existing clients, their digital user adoption by 1.4 million users.

As a reminder, because of the long-term nature of our time, we have three to four quarters the ability in the upcoming client recursion.

We expect churn of less than 1% for the full year of 2024, all of which are occurring in the fourth quarter.

Over the long term, we model digital banking AR-R-Turn at 2 to 3% per year.

We enter the quarter with an RPU of $17.54 of 8% compared to a year ago given by Adam Sills success and the addition of new clients who tend to onboard with a hot beverage RPU.

Brian: We are saying drive-based demand across our product portfolio. Our 2024 NewsCales Performance continues to outpace 2023.

Brian: Year to day, we signed 23 special banking platform clients, including eight banks, and are at on sales effort represented approximately 46% of 2020 for new sales.

In addition to add-on soap, our client sales team is responsible for client contract renewals.

We expect to renew over 30 client relationships in 2024.

During the first nine months, 24.

In 26 quiet relationships and in total increase the ARR run rate, 15% at the time of renewal outperforming prior to your cohorts.

Brian: And finally, our remaining performance obligation was just under $1.3 billion representing $3.7 times, our ARR is up, 27% compared to a year ago.

Now turning to Groves Martin.

For the third quarter of 2024, we delivered 9 gas gross 6.8% representing 400 basis points of expansion compared to the prior year.

We achieved gross marketing expansion through continued improvement in our hosting class, in platform investments as well as offering leverage across the world.

Brian: and the

As a reminder, our 2022 Smo.GNM is 65%.

The League of Operating Exfances.

For the third quarter of 2024, operating expenses of 46 million for 53.6 revenue represented year over year operating leverage of 490 basis for it.

Brian: We've arrived offering, whatever you're across each operating expense, we're probably primarily in R&B where we continue to realize operational scale while investing in our platform.

Investment-focused areas include initiatives to drop quality and cost efficiency of the platform, expand our product offering, improve accessibility, and enhance the product market fit of our commercial thinking offering.

As for non-gap sales and marketing expenses, we continue to achieve a high level of sales and productivity and go to market efficiency.

For the last 12 months, we increased ARR 67.1 million while investing 48.5 million in sales and marketing, representing an efficient sea ratio of 1.4 to 1.

Brian: We believe this ranks among the very best and SaaS in terms of sales and marketing efficiency.

Our Justin Ebedon third quarter was 8.3 million, better than the high end of our expectations.

are just an even on margin for the quarter with 9.7% and when combined with our revenue growth rate, results in achieving rule of 36.

Our operating strategy of balancing revenue growth and possibility will continue and we expect to achieve lowest 40 on a run rate basis as we export 4th quarter of 2025.

As we are now approaching 2025, I want to provide some additional color on the path to our 2022 suggested EVADOMargent Target at 20%.

As we previously mentioned during 2023, we began to build a base of offshore talent through a third party outsourcing model.

This has been a passive experience for us, allowing us to expand engineering capacity during a period of rapid growth while focusing on profitability. We are now preparing to transition these activities to a captive offshore subsidiary model.

Brian: We expect to invest in this capability starting in the fourth quarter of 2024, continuing throughout 2025 with a goal of completing the transition during 2026.

We do not anticipate any impact on our 2022 financial targets. Although we do expect to see a positive impact on margins beyond 2022.

Brian: During 2025, the incremental investment to a best-to-transition will represent a approximately a point of margin for the year.

Brian: We are very excited that we are ensuring as an organization and we look forward to the positive operational and financial impact this can have as we scale the business beyond 2026.

Related to our balance sheet, we ended up according to approximately $111 million of cash in marketable securities. A revolving credit facility remains un-tron and provides $125 million of borrowing capacity.

In the third quarter, we produced operating cash for a $11 million and free cash for a $8.7 million.

Now I'll turn you to God.

For the fourth quarter of 2024, we're providing guidance for revenue in the range of 89 million to 90 million, which represents total revenue growth of 25% to 26%.

For adjusted Eda, we are providing 4th quarter guidance from the range of 8.5 million to 9 million.

The full year 2024, we are providing guidance for revenue in the range of 333.2 million, but 334.2 million, representing total revenue growth of 26%.

We are also providing a justice eave that I got this is 25.2 million to 25.7 million.

Brian: In closing, I am very pleased with our continued progress. Our team delivered a strong quarter with profitable growth, continued operating leverage, and a level of go-to-market efficiency that places us among the very best performance and SaaS.

and was strong, industry tailwinds combined with our multiple growth drivers, we have a clear path for a longer-term operating and financial targets.

With that, I'll hand the call to the operator to take your questions.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two.

If you are using a speaker phone, please make sure to lift your handset before pressing any keys.

Your first question comes from the line of Alexi Gogelev from JP Morgan, please go ahead.

Alexi Gogelev: Hi, this is Elise Kennler on 4 Alexa Google. My question is about, where do you currently see the AI adoption curve and what will it take for customers to become more comfortable incorporating AI based solutions and how dependent is this on industry regulation?

Thanks for the question. The adoption curve is, well first of all, AIs been used in the financial services industry for a long time. So if you thought about, you know,

Alexi Gogelev: and the

who would activate your core to a voice response unit, you know, some of those things in terms of natural language processing that have been used for quite a while. But in terms of using it for predictive models around revenue generation, we're in the early stages.

Brian: and what it's going to really take is I've mentioned in the prepared comments, is for the customers to be able to cleanse and normalize and manage their data. These customers...

You're some of the best data you have.

Brian: to run AI models as transactional data. And these customers have that information in their, well, a banking application in their core. But getting all of that to a state where they can run the models against it is the first big step for them.

Draw it. Thank you. And then my second question would be, what do you think drove the really strong ARUB list at renewal?

What we're seeing now is there's just a greater appetite for more innovation and technology through the platform.

and so on average if you look at our client base they average between 13 and 14 products.

And then would you analyze the new sales cohorts that are coming in their averaging around 19 products. So what we're renewing today are clients that typically have somewhere between 9 to 14 products that's for building on par with where new sales cohorts are coming in. They need more innovation. They need to be more than 19, 20 to 20 to 20 product level. So it's really the cross-sell opportunity that's occurring at the time of renewal.

Brian: We'd like to add to that and we've mentioned this. We've mentioned this on a couple of calls, or said, so here's a guy we started building known a client facing account management team. That account management team has now been in place.

for a couple of years and those in because of that they're able to establish relationships.

and Executive for Gigi Borkshops with our clients where they lay out a multi-year digital transformation journey, which leads to strategic adoption of the products that Brian was just talking about.

Karate, thank you so much.

Brian: i

Your next question comes from the line of Patrick Walrevens from C-Dzens JMP. Please go ahead.

Hey there, this is Austin Cole on for Pat. Appreciate you taking my questions and congrats on the results.

So I recognize some of the kind of longer term demand drivers don't really change day to day, right? But with the kind of 50-based point rate cut and some of the long yields.

Rising, I mean what impact do those things have on your business and are you feeling any change and kind of attitude from clients?

Brian: Thanks.

You know what I would say is the demand for digital banking has remained consistent.

from the low interest rate environment to a high interest rate environment to the recent interest rate changes. So this is a...

This is a long-term market sector transformation in which the customers aren't making decisions.

to accelerate the investment one quarter or decelerate it another quarter. The main difference that we see is the products that they add on based upon the interest rate environment. So are they adding on products?

Brian: Like an incident count, verification to try to be able to drive deposits, or if this market change a little bit, and their balance sheets, you know, were able to change and make it make it more loans than are they going to be buying products that help.

More with loan generation. But summary is the long-term change and investment is an impact impacted by short-term industry changes.

The mix of add-on products sometimes changes and that's good for us because we've got products that are useful for either side of that equation.

Thank you.

Brian: i

Speaker Change: Your next question comes from the line of Chris Kennedy from William Blair, their line is now open.

Good afternoon. Thanks for taking the question Brian. Can you talk about the long term savings opportunity for the off-shoring and understand that's 2026 in beyond but can you frame the opportunity there at all?

We're excited about the opportunity and we presently we have

Maybe a hundred and ten to a hundred and twenty on FTEs that are coming through this third party and they're exclusively engineering.

and one of our...

One of the secrets to our success has always been best platform wins and so there's this

is the desire to continue to innovate through the platform, create new products, provide innovation to the end market. We'll do that, possibly, we have to find areas in which we can do that at the right price point.

Engineering is definitely an area where this is going to benefit us.

Then also this is gonna be a thinnest within gross margin and cost of sales.

Because over the longer term there will be opportunities.

or some of our post-fail operations offshore some of those at least at growth in those areas that been the cost curve. So we're extremely excited. The adoption within the company has been great. The results that we're seeing in productivity has been really very good as well. And we think that only improve as we move more to a captive model versus a third-party outsourced model.

Great, thank you for that. And then just follow up on the data platform and the opportunity. Can you talk about how open banking in the US will impact that opportunity? Thanks for taking the questions.

Yeah, this is Alex, I think the rate and pace of open banking is still pretty much unknown. So the customers right now, you know, we...

Speaker Change: We just said the directive that was handed out a week or so ago from the CFPBD. The investments that the customers are making right now in data really have nothing to do with open banking. And so it's open banking where to accept.

Speaker Change: That might provide more tailwinds in terms of the data investment.

The investment that the customers are making right now in data is really realizing that the advantage some of the mega banks have in terms of the investments they've made in their data platform and their models. And since that tends to be the competition that we're selling the most.

Their current investment is about current capabilities with the current market conditions. Then really doesn't have to do with this point-time and open banking. Like I said, that might be an increasing tier one force, but the rate and pace of that.

When I talk to customers is largely unknown.

Great. Thanks for taking the questions.

Speaker Change: Your next question comes from the line of Jeff Van Reef from Craig Hallam. Please go ahead.

Thanks for taking my questions, it's a Daniel on for Jeff. Just in terms of you discussed the mindset, obviously, with interest rates of FI's changing toward attracting deposits. If any additional thoughts on how that's been translating into new logos and additional ad on products?

Yeah, I would say earlier the change in interest rate environment doesn't really impact the rate and pace at which we're closing new logos. If you go back a little bit to some of the comments that Brian and I have made in the past.

These contracts are 5, 6, 7 years.

A customer will have to make the decision to begin a conversion process a year.

Before their contract is up for renewal, which means they'll start the decision cycle maybe even a year before that. And so, any change in interest rate that might happen in that decision cycle?

Doesn't really change whether or not they're going to make a decision because they're making a decision for the next.

5 to 7 years. The biggest impact that it has for us.

is the mix of add-on products that we sell. There's a certain set of products that are useful for a low interest rate environment, and a noticeable set of products that are useful for a high interest rate in products. It's used the high interest rate environment, and so we've seen that mix shift.

You know, starting with that was almost 24 months ago when the interest rate started going up and it might shift back at the interest rate start going down.

Thanks for that, and then just on the credit union ad page.

In 2024, fairly similar to 2023.

So we expect crediting and adds to remain relatively flat around this level of call it 30 crediting in a year just based on that regular cadence of crediting that come up for renewal and the limited number of deals that could be pursued in any given year, or should we be thinking of any ways that that ad count should be showing acceleration?

Speaker Change: Thanks.

You should expect the credit unions that we add from year to year to remain pretty consistent in the 25 to, you know,

Speaker Change: But a lot of it is.

Frame by the structure and cadence of the market.

Speaker Change: As Alex just mentioned, five to seven year contracts. We focus on the top 2,500 financial institutions, those top 2,500 financial institution, for a percent over 200 million digital users. And so there's a rate and pace in which those come to market. And we continually win our fair share of credit unions, and we're starting to see more at bats and more opportunities as a relates to banks. And we believe you know, two, three years out will be at the same rate and pace with banks as a relates to credit unions.

Speaker Change: That helps, that's it for me thanks guys.

Speaker Change: i

Next question is from the line of Adam Hodchkes from Goldman Sachs, please go ahead.

Great, thanks so much for taking the questions. I guess first is to start in your experience on some of these data related out on sales. How much education has to happen on your side of the equation to get advised to understand the value and the security that you bring them here versus them sort of proactively coming out from the opportunity. I guess I'm just trying to understand how knowledgeable and educated some of these bank decision makers are around the AI opportunity and the data opportunity.

Yeah, it's been interesting to watch over the last three years. I would say three years ago, we would be in evangelical mode about data.

and now almost every executive that I talk to knows that they have to become a data-first digital.

Speaker Change: So we're no longer in an evangelical mode in terms of, well, you should think about the fact that data will drive personalization in the digital banking channel. These are all smart executives and they all get it. So that changes often in the last three years.

Speaker Change: We do have two different sides of the market.

Speaker Change: So we'll have a part of our market that is pretty sophisticated from a data perspective they might.

have created their own data capability through something like...

Speaker Change: You know, like a snowflake or something like that, they've got their own marchex stack.

Speaker Change: and what they want to do is figure out how to use Alchemist, climate and curated data to feed him into their data tech stack and then to be used into their marketing tech stack as well.

and then we'll have another set of the market that it's just been hard for them to get that talent in their organization. And so they want essentially a shrink-wrapped capability where the data plots.

The models that are already built right on top of those models and then has essentially a walled garden, Marchek Stack that sits right on top of the data.

and the model. So in some of the last three years has moved from an event, geological position to a position where the executives get it and they're asking us how we help. And the market is bifurcated between sophisticated customers that have built their own data, tech stack and models and they want our data to feed it.

and customers that struggle getting access to their skillset and want a...

A pre-built capability for data models and work.

We're seeing it in our results as well. So if you look back a couple of years ago, where we were seeing success with our data products was really when a digital banking platform so was occurring.

So we would see maybe a 50 to 55% attachment rate, but when sea level executives of financial institution were involved in making this decision, we tended to have more success.

and selling our data product. Now when you look at the attachment rate in 2024, we're closer to 75% so that's a good news.

But what gets me excited is a couple of years ago, it was really hard for my client sales team go to market motion where their penetration point in the market.

Generally, there's a bit lower than the C-suite to get traction with the data cell. We'll flash forward to 2024. Now, our data products are one of our leading cross-cell products back into our base. So not only we see strong attachment at the point of a new client, when we're also now seeing some very nice progress in our client-cells in cross-selling back into our base.

Okay, great, that's really helpful and just to follow up on that in terms of bank win rates do you think that data and AI just more broadly when you talk about that 70% of touch is that's helping you improve bank win rates and you know I think you've given some color on where you where you are there in the past have you been making progress there generally just any update there would be helpful.

Just generally our data product is a differentiator for us in the market.

Regardless of the type financial institution.

So I'll witness tribute, Bank Win Rape, Movement to a very interesting, general, that's a different year for us.

But on the topic of banks.

Speaker Change: We're seeing some sex.

I mean, in the point that I'd like to make is as you're approaching into a new remark, you had to create work at awareness. We're now competing, if you look at on a 12-month basis, we're competing in the same number of bank deals as we are credit-you-you-you-you-you-you-you. So that's super exciting for us.

We're adding talent to helping build out our commercial banking product as such when in the visual is our new chief podcast serve, Guggen, Conjalia.

and who is the biggest commercial banking background. So a lot of positive things are occurring as it relates to banks and we really view that as a growth driver in 2025, 2025, so it can be on.

Really helpful, thank you both.

Speaker Change: i

Question comes from the line of Charles Naven from Steven's, please go ahead.

Charles Naven: Hey guys, thanks for taking my question and congrats on another solid quarter. My question is on the revenue growth algorithm. Clearly it's been very strong through the year, but it looks like our poo has...

Accelerate RPU Grow is accelerated, whereas user growth has...

Speaker Change: The accelerated slightly, which I guess makes sense if you consider that you're driving more revenue from banks and cross-sell. But I guess as we think about that going forward, could you maybe comment on how that algorithm could work over the medium term in terms of...

Use a growth versus our crew growth as it pertains to overall revenue.

Well, the beauty of the Outcoming Revenue Model is we're not overly dependent on either of those factors. I mean, what works, we're growing, we're taking market share by adding new logos, which adds...

Speaker Change: New users and then our class.

and they're very successful in the adoption of their customers and businesses that use our digital banking platforms so they're adding digital users to the platform. We're seeing new logos coming on with a much higher RP view than our blended company average view. In fact, our implementation backlog averages around $23. Compared to the $17.54. So there's a lot of levers in our revenue model which in any one quarter, one lever may outweigh the other lever.

has relates to user growth that is just really tight specifically to what our backlog is coming into the year and the time in which we implement those new clients.

This year we have seen Digital User Growth go from kind of high teams down some more mid teams, but oh, you know, setting for that has been our poo expansion because of the excess we're having from our client. So teams going back into our base. So I think what you'll continue to see is user growth in that 15 to high teams range and our poo expansion can continue to expand beyond the 7 and 8% that we're at today.

Got it, super helpful. And as a follow-up, I wanted to ask about the gross margin target in light of your comments around the off-shoring strategy. If I understand correctly, you're expanding gross margin by two to three hundred basis points a year.

Those investments will be about 100 bits negative.

But that still gets you to something north of 65% by 26. So I guess my question there is, are there any other quits and takes we should consider with respect to the gross margin?

or is that just an element of conservatism built into that target?

So we provided the 65% gross margin target a couple of years ago, and what we, what Alex and I suggested, we would achieve that target somewhat radably from where we were at that point in time, which would indicate a couple of hundred basis points of gross margin expansion a year.

We've actually performed that as you're pointing out, but we're still standing on our 65% gross margin in 2020-6.

Now the point of margin that I mentioned in my prepared comments related to establishing our offshore subsidiary that'll actually come through R&D. That's not a cost of sales or gross margin factor.

You should continue to expect that gross margin in 2026, a target of 65% we could get there faster. We're only a couple hundred basis points away, so potentially we achieved that as we exit 2025. But once we get closer and have visibility in the quarter, which will actually go over 65% gross margin, then we'll reestablish it along return gross margin target.

God, thank you for the clarification and appreciate the responses. Thanks again guys.

Next question is from the line of my act and in from Needham, please go ahead.

Speaker Change: i

Hey guys, it's Sam on for my anchor. Thanks for squeezing me in. Just a couple quick questions.

One touching on those renewals, you guys mentioned, could you talk about exactly which products you guys are seeing the strongest add-on momentum with these renewals that are coming up?

Speaker Change: So the success that we're seeing and not just renewals that just in cross-sell more broadly or within our fraud and security products.

Speaker Change: The data products which we've spent a lot of time discussing on this call, as well as our client services products, which includes things like chatting and anything that can intercept the call from going into a financial institution, contact center, so some more self-services things that products.

and then finally financial wellness.

Speaker Change: If you look at our client days.

and with a large percentage of our clients being more retail focused, many of them have a charter of trying to build financial wellness and financial wellness products within their customer community and so our financial wellness product have been a nice uplift force as well.

Got it. Okay, that's helpful. And then kind of in the similar vein, just wanted to switch over and get your comments on the product road map and what that looks like. Any areas that are of particular interest for you guys? Obviously with the rise of.

Gen AI solutions and capabilities and then you guys also brought on a chief product officer earlier this year in the summer I think. So just any comments around that would be helpful as we kind of shift focus into 25.

Maybe the best lens to look at that true would be what's the coin it demands.

So when you sit down and talk to our clients or our prospects, they're focused on a couple of things.

Telling a new product to an existing customer remember, we're bringing on a new customer or a member. How can they create a great end to end digital experience the way that they are created to create digital banking experience? So that's an area that customers have.

Speaker Change: A lot of interest. They continue to have a lot of interest in fraud and fraud management. You have this interesting problem between, if I reduce friction in the digital banking channel, I increase.

for tuning in the digital banking channel. So they'd love to see more.

Real-time fraud capabilities that extend across the entire platform so that they can reduce.

and the way that they interact with their customers. One reason we talked about data and marketing is because it's on every single customer's plan. What am I going to do with data, data platform, and then from a payment perspective?

All of our code, you know, the introduction of fit now in real-time payments is in along with

Summit of P to P, payment, innovation, as calls are a customer to take a step back and sit in themselves. How do I create a better, easier experience?

Speaker Change: around the payments that my customer remembers might want to make.

Speaker Change: and then how am I going to incorporate things that Fred Nath said now and real time payments into my strategies. So for us, our opportunities are in those, is because those are the...

and I'll just see where the quiet demand is.

Speaker Change: Before we to summarize, it's payments.

It's a better digital end experience with you. They're onboarding somebody or providing them a new loan or new product and it's fraud management.

Speaker Change: with the data platform.

Yeah, okay. That's all for next episode. Thanks Alex. Thanks for smoothed the meaning guys.

Speaker Change: Your last question is from the line of Jacob at Steven from Lake Street, your line is now open.

Thanks for taking the questions, congrats on the results.

Speaker Change: Maybe just following up on a question asked about the year.

Captain Bob Shaw model but maybe you could kind of help us understand what the waiting of the margin impact will be. Will we see kind of more of an impact or more expense and kind of the first half followed by improvement in the second half or maybe just help us think about that.

The 1% of investment in margin, the 1% margin of investment, and thank you about that more rate of leap throughout the year.

So it's going to start in 24th order 2020-24. See that? Think about that more rate of lead throughout 2020-5. And then we'll start feeling more of the benefit in 2020-6.

Okay, got it. And maybe just this helped kind of accelerate the implementation timeline for new logos or does this really kind of more software internal development.

Speaker Change: The initial focus is continuing to increase engineering capacity.

This isn't a cost cutting play. This is about absorbing growth in the organization and continuing to deliver engineering capacity and new product development capacity while we balance that with profitability objectives that we have.

Once we establish...

The Offshore subsidiary which will happen throughout the 2020-25 and early in the 2020-26.

The end we can start exploring other areas within Alchemy where we can absorb continued growth.

But that's further into the future and right now the focus is primarily on engineering capacity. Here's the decision point. If I go back to the previous question, we have...

360 degrees of product opportunities if you look at customer demand.

Speaker Change: and what we need to do is figure out how to get more product out the door.

and continued to drive balanced revenue and profit growth.

Speaker Change: That's the real driver behind the establishment of the India is the opportunity that sits in front of us and are desired at engineering capacity so that we can build those new products.

Speaker Change: i

Speaker Change: Okay, got it, that's all pulled, maybe just one last one.

Some of the kind of alone origination product obviously, you know, mortgage lending.

has been down, also personal loan, there's been some softness in that vertical. Do you feel like...

Do you feel like customers are more willing to essentially explore new solutions at this point with the interest-arrayment we're at that or you find that that's not really a factor.

What I think about loans as front of house and back of house.

So most of our customers have a workable back of house, application for their loan origination.

But what they want is they want a better...

and Digital Experience for the consumer or for the business that's coming in.

You know, as welcoming things about its future, not necessarily should we replace their back of house mortgage application platform.

We, in our customer, we kind of own the front of house experience and what could we build onto that front of house experience that would give.

Their customers are better onboarding into the entity or better purchase of.

and the new product. So in summary, think about the digital experience on the front end of buying a new loan product and think about the back of house.

Administrative Activities necessary to underwrite that loan and book that loan and produce the documentation associated with that loan. Anything that Alchemy does would be associated with the Trump House Digital Experience.

Okay, got it, that makes sense. I'm appreciate it, guys.

The End

The last question comes from the line of Andrew Smith from City. Please go ahead.

Alex, Steve Ryan, thanks for having me on here. Sorry if I missed this.

Andrew Smith: But I just want to dig into the M&A, your thoughts, and M&A obviously, you know.

Andrew Smith: The Equity Valuation Coming Up presents an 8-current seat to do transactions you've been pretty successful with.

Speaker Change: and the past in terms of adding capabilities on sounds like prices out there are starting to become more reasonable. Just want to take your temperature on just the M&A environment as you see it now. Thank you.

Thanks Andrew for asking the question. We're seeing, as you would expect, an increased...

Speaker Change: Number of targets that are becoming available. We have a few individuals internally at Alchemy that their job is not exclusively close to exclusively focused on human activity. So we're seeing

Speaker Change: The multiple expectation of the targets seem to be now finally coming more in line from where they were maybe 18 months ago, we're shooting the quality of assets and proving, but we're a discipline buyer.

We're not just buying revenue, we're buying functionality that can continue our growth trajectory for many years into the future, but we're also not going to take a step back.

on our profitability objective. So as you put more and more requirements in the filter, it starts narrowing the field.

But we're pretty disciplined when it comes to those items. And then as a relates to capital available for us, as I mentioned, we have $125 million remaining or available on our credit facility because it's presently ungrond. I have a ability to continue to borrow more beyond that. Equity capital is attractive as a potential source of capital. We'll always seek the lowest cost of capital possible to achieve greater returns as a relates to young and activeity. But I think the takeaway is it's been several years since we've acquired a business.

Organizationally we're in a position where we could absorb another business, the pipeline for Ilmanay is becoming more attractive and it's definitely a growth driver, a growth area for our ethnic.

Speaker Change: I agree Brian and maybe the summary is new organic product build and M&A are two parts of our growth strategy.

Speaker Change: i

Speaker Change: Got it, makes a lot of sense, thank you for that.

Speaker Change: and then I believe you mentioned that there's sales momentum continues but I do want to ask about

You know the fourth quarter you do have an election here, you know, coming up right in the middle of the quarter and in fourth quarter tends to be a big book and quarter.

Just curious how the sales cycles are shaping up, seeing a hesitation in terms of bookings, you know, any thoughts there will be helpful.

and to the challenge, as I said before, you know, the debate.

Speaker Change: None of us can predict what businesses are going to be thinking about in the next couple of months. But I would say today we haven't seen any...

Maca-Reconomic or Geo-Political things occur over the last several years that have impacted the steady rate and pace of digital transformation in the regional and community financial institution.

Market. So, I think it'd be a lot of humor, so on my part, to predict what's going to happen, 48 hours after an election, but today.

Economic situations, political situations and geopolitical situations have not changed the trajectory of the digital transformation in the market that we serve.

It makes a lot of sense. Thank you very much, Alex.

Speaker Change: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.