This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk08: Hello and welcome to the third quarter 2021 financial results conference call. My name is Brandon and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session during which you may dial star 1 if you have a question. Please note this conference is being recorded. I will now turn the call over to Rhett Butler, Vice President of Investor Relations, and you may begin, sir.
spk02: Thank you, operator. Good afternoon and welcome to Alchemy's earnings call for the third quarter ended September 30th, 2021. With me on today's call are Mike Hanson, Alchemy's chief executive officer, Stephen Bohannon, Alchemy's co-founder and chief strategy and sales officer, and Brian Hill, Alchemy's chief financial officer. During the course of today's conference call, we may make forward-looking statements, including statements regarding trends, strategies, and the anticipated performance of the company. These forward-looking statements are based on management's current views and expectations and are subject to various risks and uncertainties, including risks related to our operating and financial performance. Our actual results may differ materially from those contemplated by these forward-looking statements, and we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct. please refer to the risk factors included in our filings with the Securities and Exchange Commission, which are available on our investor relations website, and the press release distributed earlier this afternoon regarding the financial results we will discuss today to review important factors that could cause actual results to differ materially from those reflected in the forward-looking statements. Forward-looking statements, made during the call are being made as of today, November 4th, 2021, based on the facts available to us today, and we undertake no obligation to update or revise any forward-looking statements. Also, unless otherwise stated, all financial measures discussed on this call will be on a non-GAAP basis because we believe these measures to be useful to investors in the understanding of our financial results. A reconciliation of each comparable gap metric can be found in today's earnings release, which is available on our website, investors.alchemy.com, and as an exhibit to the Form 8K furnished with the SEC today. With that, thank you for joining us, and I'll turn it over to Mike.
spk03: Thank you, Rhett. Very well done there. And thank you, everyone, for joining us today. As you may have seen in the press release, our results for the third quarter were strong. I'll dive into a few of the highlights in the quarter in a couple of minutes. And Stephen, as always, will discuss some of our innovation initiatives and go-to-market highlights. Following Stephen, Brian will dive into the results for Q3 and our guidance for Q4 in the full year. And I'll be back again at the end of Brian's prepared remarks for a few closing comments before Q&A. However, first I wanted to address the press release that many of you have hopefully seen announcing the appointment of Alex Schutten as the new chief executive officer at Alchemy effective tomorrow, just a few hours from now. I'm so excited about this announcement and the next stages for Alchemy that his arrival represents. I believe the combination of what Alchemy is today with his complementary talents will catalyze even turbocharge the Alchemy of our next stages. He will be meeting the broader leadership team tonight, all of our alchemists in the morning through a video call, and our clients and partners moving forward. Welcome, Alex. I feel the energy already. As a bit of background, eight years ago I joined Alchemy after being inspired by the vision of co-founders. They were driven and committed to expanding financial choice and financial literacy by democratizing digital banking technology, and I wanted help. Gary, Steven, and the chairperson of the board then and now, Brian Smith, were the ones who hired me. And every day since, I have been overwhelmed by the talent and tenacity of the alchemists. The unique alchemy of purpose, people, clients, technology, partners, capital, and the community is what makes this company so extraordinary. And it's reflected in the culture within our walls and the enduring relationships we establish or reinforce daily with our clients. and our partners across the ecosystem. We've accomplished a lot and I'm so proud of all we've done and are. And today is day one of the next stage as I have made the decision to retire to make way for a new CEO to take the helm day to day while I remain a member of the board of directors. I believe Alex is the ideal leader for this next stage. He's a proven veteran and visionary in the enterprise software as a service market. He successfully scaled companies like Workfront, Aptio, Eloqua, and he has empowered their customers to innovate through modern technology. He has a track record of growing great companies from the outside in, making clients core to a company's strategy and priorities. And he also brings, along with him, new and different perspectives and experiences. And perhaps most importantly, he embodies the cultural values that make Alchemy and our remarkable client community so special, transparent, bold, innovative, collaborative. On behalf of all Alchemists, I welcome Alex and will do everything I can to support him in the future success of Alchemy. He will do and be great and do great things for Alchemy. I'd now like to make a big shift from our new CEO and take a few minutes to update you on my perspective on the overall market and the results in the quarter of the awesome team of nearly 680 alchemists today. In the last quarter, we've seen a number of market indicators that once again suggest the digital transformation of financial institutions continues to accelerate. First, according to CB Insights, the global fintech market reached a record $91.5 billion in funding so far this year, nearly doubling last year's total. In Q3, the U.S. leads the market with almost half of the FinTech funding invested. Second, one of the leading aggregators has reported that the penetration of U.S. consumers using FinTech offerings increased 52% year over year and is now hovering at around 88%, which puts consumer FinTech penetration in the same ballpark as streaming video services and social media. Third, cryptocurrency is hotter than ever. CB Insights reports that global venture capital funding in crypto and blockchain reached an all-time high of $6.5 billion in the third quarter, with the U.S. continuing to lead the world in VC funding. Fourth, we've seen increased discussions and decisions on industry consolidations of regional and community financial institutions. Generally, our clients are the acquirers. The rationale we are seeing for the increased velocity includes references to the challenges of competing in this tech-enabled world of financial services. And finally, megabanks are not standing still. One megabank recently reported their digital deposits, just digital-only deposits, grew significantly in the third quarter And this same mega bank reported a significant increase in installment loans where more than 80% of those loans were originated digitally with no contact with the branch system or the branch system. The battle for relevance and success in this increasingly digital and mobile first market has never been more significant. Our clients see it and are responding accordingly. Alchemy allows our clients to harness their own innovation and our innovation and the community's innovation through what we believe to be the best digital banking platform in the market to leapfrog others much larger in size and resources. With that in market context, let's move on to the quarterly results. I'll touch on a few highlights, but Steven and Brian will be providing additional detail and context on a number of them in their upcoming sections of prepared works. A few of the highlights are we continued our relentless focus on our clients' success in what we see as this accelerating digital transformation of financial services. Our clients count on us for a secure, performant, compliant, nimble, extensible, and market-leading platform to win. And in terms of client success, they are doing so. Our live clients grew their digital users 14% year over year, what we estimate to be at least double the annual growth rate of the overall market. Combined with new launches, we crossed over 11.4 million digital users on the digital banking platform at the end of the quarter, a quarter-over-quarter increase of about 680,000 digital users. We demonstrated aspects of the strength and resilience of our four-pronged growth strategy with each prong contributing to our results. These four prongs are client success with our platform driving user growth, client uptake or cross-sell of existing and new solutions into our white space that drive RPU growth, new logos, and inorganic opportunities to accelerate growth. Third, we continued our pedal-down commitment to innovation. Through continued investment in R&D and the acquisition of MKDecisions, we'll call it MKD for purposes of this call today, allowing us to offer digital account opening and loan origination solutions and expanding our total addressable market by approximately $2.5 billion. We enhanced our portfolio with the new strategic partnerships with NYDIG and BioCatch. We already have our first NYDIG client, Starbank, in production, allowing us and our clients to tap into a growing crypto market. We expanded our overall TAM by about 34%, from $7 billion to a total of just under $10 billion, with our potential ARP moving from $38 per digital user to about $52 per digital user. This is even before considering what we may find as we advance our cryptocurrency offerings that we've announced recently. We experienced the best total sales quarter of the year so far and saw continued top-of-funnel momentum in new sales opportunities. and we expect this momentum to continue into Q4. We delivered 37% revenue growth year-over-year while remaining ahead of our non-GAAP gross margin stated objective based on 2021 performance. Overall, I would call that a solid and strong quarter. Now I'll turn it over to Stephen Bohannon to update you on our innovation and go-to-market activities, and I'll be back at the end of the prepared remarks before Q&A to make a few closing comments. Stephen?
spk06: Great. Well, thank you, Mike. Well, I'm going to deviate from this just a little bit. I want to say something about you. And I didn't put this in the prepared remarks because I knew you would delete them. And so I had to put it on my phone to sneak it in here. But I want to say as a founder, it is nerve-wracking and scary to bring in a CEO. When we hired you eight and a half years ago, I was excited about the prospect of having someone to help shoulder the load. But at the same time, I was full of fear about what it would mean to the company and my role in it. Today, I look back at that decision as one of, if not the most critical decisions that has brought both Alchemy and me personally the growth and success that we've enjoyed. It's been an alliance more rewarding and fulfilling than I could have ever dreamed. You've not only been my leader, but also my mentor and my friend. I appreciate you, I respect you, I admire you, and I love you. And as excited and energized as I am about joining forces with Alex for this next stage of Alchemy, I'd be lying if I said I wasn't going to miss you. Thank you for all you've done and for the example that you've set, not just for me, but for all alchemists. It's a legacy we will continue to build upon for many years to come. And now I'll return to what you were asking me to talk about, which is the innovation side of things. All right. And thank you. Of course. All right, moving on to innovation. Our client conference, which we held in September, is just one of the many ways we connect with our remarkable client community. We use this forum to discuss the state of the market and Alchemy's role as a valued partner in helping our clients compete and win. Given the definition of the primary financial institution and the customer relationship itself are ever evolving, Alchemy's value rests on our ability to help our clients remain relevant. Consider for a moment how the start of an FI customer relationship has fundamentally changed, such as when a customer or member opens a deposit account. According to Cornerstone Advisors, digital applications for primary checking accounts exceeded branch applications for the first time in the second half of 2019, even before COVID-19 hit. Cornerstone also reports that more consumers who opened an account in the past three years rated their experience on the mobile channel as excellent versus consumers that applied in a branch. And while deposit accounts are certainly important, the past year's challenge for FIs has really been about generating more assets in the form of loans. another primary conduit for initiating or expanding the customer relationship. The financial brand reports that nearly 90% of FIs rate a greater number of loans as very or somewhat important. It's clear that FIs need a frictionless, automated, digital, self-service way to acquire more deposits and more loans, with the ability to pivot their focus seamlessly to maintain the delicate balance between the two. It's why Alchemy announced last quarter our acquisition of MK Decisions, or MKD. We believe MKD's technology is special in solving the challenge so many of our clients face. Many market solutions require disparate platforms and decision engines for each side of the balance sheet, deposits or loans, resulting in fragmented processes and user experiences that make it difficult and inefficient for financial institutions to cross-sell and build strong customer and member relationships. In contrast to other alternatives, this new acquisition solves for this complexity by supporting both deposit account opening and loan origination on a single cloud-based decisioning platform with an online shopping experience built for FIs to maximize the customer onboarding experience with as many products as possible. Much the same way that MKD provides a whole greater than the sum of its parts by converging deposits and loans through a single platform, an Alchemy MKD combination unlocks innovation to offer financial institutions capabilities previously reserved for the largest technology companies, megabanks, and fintechs in the market. Included among them is the opportunity to apply, approve, issue, and provision a credit card digitally in minutes. This is just one of several exciting innovations possible when combining the capabilities of both platforms to this acquisition. And it's just one of the several exciting announcements we made at last quarter's client conference. Among the others is Alchemy's partnership with NYDIG, a leading technology and financial services firm dedicated to offering cryptocurrency solutions to customers through their FI relationship. Per NYDIG, more than 20% of Americans own Bitcoin, with more than 70% of them willing to switch financial institutions for one that offered cryptocurrency. The Alchemy Nighting partnership allows our clients to attract, deepen, and retain customer relationships, generate a new source of non-interest income for transaction fees, and remain an integral part of the customer experience as the conduit for the transactions. We announced our partnership with NYDIG in June. Since then, Alchemy has been hard at work to not only integrate NYDIG as one of our valued ecosystem partners, but to deliver incremental value by enhancing the product with Alchemy's own capabilities wrapped in a beautiful, intuitive user experience that we believe will allow for easy adoption for those users who'd like to invest in Bitcoin. We already have one client, Starbank, that launched on our NYDIG product a couple of weeks ago, making Star the first bank in Indiana to offer Bitcoin services to its customers. This rollout demonstrates Alchemy's commitment to not only bring the latest technology to our clients to help them compete, but to do so with uncompromising velocity. As our multi-tenant architecture and single code base enables all of Alchemy's clients to offer this within just a few months of when we announced the partnership this summer. And as additional cryptocurrencies beyond Bitcoin gain regulatory acceptance, we architected our solution to easily add and accept those cryptocurrencies as part of our NYDIG relationship. At our client conference, we also announced an exciting new partnership with BioCatch, a behavioral biometrics company dedicated to mitigating fraud and identity theft. The pandemic has only exacerbated an already sobering problem, as the FTC reports that COVID-related fraud has cost Americans $382 million. More than ever, consumers need a safe and frictionless experience to protect their precious financial assets. BioCatch uses behavioral biometrics to continuously monitor a user's activity by analyzing behaviors like how they interact with their device, their typing speed, their mouse and finger movements on their desktop or mobile device. Behavioral biometric technology like that provided by BioCatch is among the more modernized security defenses to help provide users with a secure, frictionless experience while also reducing false positives for financial institutions. Alchemy remains steadfast in helping our clients navigate an increasingly complex technology landscape through building or buying solutions or partnering with others for the same, unlocking additional value for our clients while expanding or penetrating our total addressable market. Our acquisition of MKD expands our TAM by approximately $2.5 billion, as corroborated by a third-party consultant and other players in our space. Our partnership with BioCatch is complementary to other security products in our portfolio and allows us to further penetrate this part of the market. And finally, our partnership with NYDAG unlocks a new opportunity for our clients to offer cryptocurrency options, meaning leading indicators in the broader crypto market leave us bullish on this partnership. And as more clients and users adopt the service, we will better understand how this partnership benefits our TAM expansion and penetration goals. These innovations are only a few of the most recently launched at our client conference and are additive to the innovation roadmap we have shared on previous calls. Among them, our latest generation mobile experience is already receiving positive feedback from clients and early end users. We've also discussed extensibility as core to our roadmap strategy, and our recent partnerships with NYDIG and BioCatch are evidence of the same. More broadly, we continue to experience increased momentum of SDK submissions from our clients and our partners. In Q3, we supported the highest number of submissions from clients and FinTech partners in our company's history, with approximately 350 new SDK submissions. When comparing our third quarter results from 2021 to 2020, we've more than doubled the number of SDK submissions for the platform. Our continued ability to attract developers and partners to our platform increases the ability to provide our clients and the velocity by which we deliver it. all while relieving Alchemy of investing our own development resources in that pursuit. Our buy-build partner efforts reflect Alchemy's enduring commitment to help our clients navigate the challenging technology landscape by delivering innovation with speed, scale, and simplicity of execution. We believe doing so helps our clients compete, ultimately maximizing financial choice for U.S. consumers and businesses. I believe it's due to this innovation mindset and a nimble technology platform that enables tremendous speed of innovation that clients continue to choose to partner with Alchemy. We'll walk through just a couple of examples. First, Corning Credit Union is a client that is achieving great results powered by the Alchemy platform. CCU is New York-based, serving over 130,000 members across the U.S. According to CCU's Vice President and CIO, Mark Huffnagle, quote, since introducing the Alchemy platform in early 2019, we have continued to receive very positive feedback from our members. Alchemy's reliable and secure platform, along with continual delivery enhancements, has helped CCU achieve an industry-leading net promoter score for the digital channel and shows that our digital experience is satisfying the needs of our members. Secondly, Altura Credit Union, a California-based credit union with nearly 160,000 members, also continues to drive adoption with top quartile NPS scores through the Alchemy platform. Through their dedication and with the help of Alchemy, ACU has driven digital adoption to over 80%. These client examples continue to prove that partnering with Alchemy can drive digital adoption and engagement and help FIs compete with megabanks and the broader fintech community. Next, before I turn it over to Brian to cover the financial results, I'd like to provide a brief summary of our 2021 sales activity. Starting with the new logo sales for digital banking, during the third quarter, we achieved sequential momentum from the second quarter by closing six new logo clients. This brings our year-to-date new logo performance to 15 new digital banking clients, which is flat year over year from 2020. We would have likely moved ahead of 2020, say, for two late stage deals where the prospects announced an acquisition by another Alchemy client. So although we'll end up gaining those clients, it affects the optics of new logo stats. We expect this increased momentum of Q3 to carry forward into Q4 as well. Some additional sales metric highlights are, one, increased ARPU on the initial sale. We are pleased with our continued growth in products purchased on the initial sale, which is leading to those contracts having an average ARPU of $21.00. And two, add-on sales. Existing client sales are up 33% year-to-date compared to 2020, so we continue to see good momentum there with renewals and additional product sales. Next, I'd like to briefly address our strategic goal of gaining more traction in the bank market. Our 2021 new logo performance for digital banking includes three multi-billion dollar banks. Additionally, we've signed 50 banks year-to-date to our ACH Alert solution, 17 of which have assets in the $1 to $10 billion range, one that's greater than $10 billion, and one that's actually greater than $100 billion. Our bank pipeline for digital banking, ACH Alert, and the MKD solution remains healthy. We remain encouraged by the activity and traction there. Turning back to overall sales, consistent with previous years, the fourth quarter is key to our full-year performance, and we're entering Q4 with a strong pipeline and increased momentum. We believe this, combined with our product enhancements and additions like digital account opening and LOS resonating well with the market, will enable us to end the year with solid sales momentum. Now, I'm going to turn it over to Brian to discuss our financial performance for Q3.
spk07: Thanks, Stephen, and good afternoon, everyone. Third quarter financial results were strong across the board. I'll provide the details momentarily, but first, last quarter I reminded everyone of the four primary growth pillars contributing to our highly predictable revenue model. I think it's worth mentioning them again and providing our progress for each. Balanced performance across all revenue drivers is key to the predictability of our revenue model and key to our long-term revenue growth strategy. First, organic user growth, which measures the success of our clients utilizing the Alchemy platform as FIs build thriving digital banking communities. Our clients have increased digital users 14% year over year. Historically, we've seen levels as high as 17% during the pandemic. We are very pleased with mid-teens performance for this metric as the overall market has achieved digital user growth at a pace of mid to high single digits over the last several years. Second, increasing product adoption of our platform. This occurs through continued innovation and expanding our platform increasing our proficiency cross-selling into our install base, and closing new logo orders with an increased number of products. Third, success closing new logo sales. During the third quarter, we experienced sequential momentum from the second quarter by closing six new logo digital banking clients, moving our year-to-date total to 15 new logos, a similar amount compared to the same period a year ago. Our 2021 new logo cohort also possesses three new bank clients, an area of focus for us in terms of platform investment and new sales focus. Not included in our 2021 new logo cohort are two prospects representing around 120,000 digital users that we were in the process of closing that were ultimately acquired by existing clients. This is important and illustrates the adaptability, diversity, and resilience of our revenue model. While these digital users will not be added as new logo clients, we will add these digital users to our platform once the acquisitions close and the acquired financial institutions are converted to our clients' platform. We believe new logo sales activity, flat with the prior years, has been the result of lower new logo opportunity creation in the earlier months of the pandemic. As we progressed through the fall of 2020 and into 2021, this trend improved. Encouraging for us, our 2021 New Logo Sales cohorts possesses an average 15 products and on average an ARPU of $21, highlighting the increased proficiency of our New Logo Sales team. As a reminder, New Logo Sales typically contribute to revenue 9 to 12 months following the execution of an order. M&A activity is the fourth and final primary growth pillar contributing to our revenue model. Mike and Steven provided a detailed discussion of our recent acquisition of Ilm KD, representing our second acquisition. Ilm KD is an early stage company and should be viewed as an acquisition of technology and talent. Alchemy will continue to invest in this platform as we formulate our digital deposit and loan account openings go-to-market strategy. Ilm KD will exit 2021 with just under $1 million of ARR. Given the early stage nature of Ilm KD, during 2022, we expect several areas of investment. The overall Ilm KD platform, integration with Alchemy's digital banking platform, and our go-to-market motion, which will include sales and marketing investments, as well as client services resources in the areas of implementation, client success, and client support. These investments are necessary and a part of the investment thesis to pursue a $2.5 billion addressable market and utilize this solution to improve our position as a leading provider of digital banking solutions serving a massive and expanding total addressable market nearing $10 billion. Now let me turn to the details of our third quarter performance. I'll start with revenue. Total revenue of $39.8 million grew 37% and performed above the high end of our guidance. Subscription revenue grew 39% for the third quarter compared to last year and represented 94% of total revenue. Annual recurring revenue, or ARR, of $155 million achieved strong year-over-year growth of 36%. Underlying this performance, we added nearly 680,000 users to our platform during the third quarter and nearly 2.4 million over the last 12 months. This drives digital user growth at 26% and ending the quarter with 11.4 million registered users live on the platform. We continue to believe we are one of the leading providers of digital banking as it relates to total digital user growth. Digital user growth has been driven by two areas over the last 12 months. First, we've implemented 26 financial institutions supporting 1 million digital users. And second, our clients have increased their digital user adoption by 1.4 million users, or 14%, over the last 12 months. Revenue per user, or RPU, is the final area driving our strong ARR performance. During the last 12 months, we've expanded our RPU by 8% and ended the quarter at $13.57. This compares to our market opportunity at a blended average of approximately $52 per user, inclusive of digital account openings for deposit and unsecured consumer loan accounts. RPU expansion continues to be driven from a couple of areas. First, we are adding new FIs to the platform with a higher RPU than our overall company average. And second, we continue to see an RPU advantage resulting from our client sales team that is responsible for selling add-on products and managing the renewal cycle for our clients. Our client sales team increasing success for cross-selling products now represents 30% of new sales for 2021 compared to just under 20% for the same period a year ago. In addition, our client sales team have renewed seven clients that represent 7% of our digital users and expect to renew a few more clients during the fourth quarter of 2021. Moving on to profitability and GAAP gross margin. Our target operating model objective is to achieve between 60 to 65% non-GAAP gross margin over the next few years. We have also stated that we plan to achieve this through expanding non-GAAP gross margin on average between 200 and 300 basis points per year. Our progress towards achieving this continues to be ahead of our stated objective based on 2021 performance. For the third quarter of 2021, non-GAAP gross margin was 58%, an expansion of over 520 basis points compared to the same period last year. Expansion was driven primarily by revenue scale, greater utilization, and cost efficiencies in our client implementation, client support, and client success functions modestly offset with higher costs associated with our third party revenue relationships. Moving on to operating expense. Our goal is to balance investment opportunities with revenue growth and to maintain a good line of sight towards profitability or adjusted EBITDA positive. We have a large market opportunity to address and recognize gaining market share at the cost of near-term profitability is the correct trade-off for where we are in our current life cycle as a company. For the third quarter of 2021, total non-GAAP research and development expense was $12.1 million, about 23% compared to the prior year. From a percentage of revenue perspective, R&D represented 30%, which is nearly $350 350 basis points of margin expansion. Despite higher personnel-related costs due to increased headcount allocated to platform enhancements and innovation initiatives, we achieved significant margin expansion primarily through revenue scale. Total non-GAAP sales and marketing expense was $7 million, or 75% higher than the prior year period. From a percentage of revenue perspective, sales and marketing represented 17%, which is nearly 380 basis points of margin contraction. Higher sales and marketing expense and margin contraction was the result of returning to pre-pandemic sales event and activities, such as our annual client conference and other sales events in the third quarter of 2021, combined with higher employee related costs from headcount investments in our sales and marketing teams. The 2021 incremental sales and marketing expense attributable to our client conference and other sales event activities represented 330 basis points of the third quarter 2021 revenue. Total GAAP general and administrative expense was 10.7 million at 42% compared to the prior year period. GNA was 27% of revenue, which represents approximately 80 basis points of margin contraction. The primary driver of margin contraction was the addition of cost necessary now that we are a public company, including higher business insurance and adding new accounting, investor relations, legal, and human resource personnel. Total non-GAAP loss was 6.7 million. Our adjusted EBITDA loss for the quarter was 6.1 million, better than the high end of our expectations. Moving on to cash. We had over $314 million of cash on the balance sheet as of September 30th, 2021, representing a $24 million net use of cash during the quarter. The cash paid at close for the LMKD acquisition is the primary driver for the sequential decline. Now turning to guidance. For the fourth quarter ending December 31, 2021, We expect revenue in the range of $40.3 million to $41.3 million and an adjusted EBITDA loss of $6 to $5 million. The acquisition of LMKD is expected to contribute an immaterial amount of revenue and an adjusted EBITDA loss of $1 million, which is included in the guidance. It's important to note that the fourth quarter of 2020 possessed $1.8 million of early termination fee revenue that does not repeat in the fourth quarter of 2021. Early termination fee revenue is excluded from our calculation of annual recurring revenue, and ARR is the best indicator of revenue growth, which we expect to be over 30% for Q4 of 2021. For the full year ending December 31, 2021, we expect revenue in the range of $150 to $151 million and an adjusted EBITDA loss of $23.5 to $22.5 million. This concludes my comments for our third quarter financial performance and context for our fourth quarter financial guidance. I and the broader Alchemy team are pleased we have now performed above our financial guidance for our first three reporting quarters as a public company. Mike will next provide a few closing comments before we open the call to questions.
spk03: Thank you, Brian. Thank you, Steven. Well done, as always, gentlemen. Appreciate that. Before we commence our Q&A, which we always enjoy and appreciate, I'd like to take a few more minutes to close out my time as the CEO of Alchemy. So as I step away from the day today at Alchemy, I want to first thank our founders, Gary and Steven. for the chance to participate. In particular, I want to thank Steven. I've worked with him side-by-side, minute-by-minute, through the whole Microsoft. Now only folks doing the right things all the time. A truly phenomenal person, a digital banking leader, and the best founder I've ever been around. I'm so thankful for the ally he has always been. I also want to thank our tremendously supportive investors and our wildly competent and committed board of directors. To a person, every director has been there for us and me and still are. I also want to thank our rock star clients and partners for trusting me, teaching me, and challenging me to be better. And a huge thank you to all the alchemists and their families with us today. and those whose paths we've crossed along the way. I'll just say this. It's truly been my greatest experience of my 46 years career to do this. And thankful for just doing it. And a deep thank you to my wife and daughters for them hanging there with me. When the days were long and my mind was somewhere else. With that, let's open it to questions. I think that's it for the time. Okay. So, Rhett, would you please take over so you can get this organized for me?
spk02: Operator, I think we're ready for questions.
spk08: Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If you have a question, you can tell Star 1 on your phone keypad.
spk03: Okay.
spk08: If you'd like to please dial the pound sign or the hash key. If you're on a speakerphone, please pick up your handset first before dialing. Once again, if you have a question, please dial star 1 on your phone keypad. And from JP Morgan, we have Sterling Auty. Please go ahead.
spk04: Hi, it's actually Maya on for Sterling. I wanted to ask a bit about the TAM increase. So is that, is the full 34% increase coming just from the MKD acquisition or is it also from expanding products? Can you just talk a little bit more about that?
spk07: Yeah, so what we did this quarter was we updated our TAM based on the MKD acquisition. So that only includes digital account openings for deposit accounts as well as unsecured consumer loan accounts. Our previous TAM calculation for digital banking and ACH Alert was just under $7 billion. This acquisition adds about $2.5 billion. So converting that to an RPU based on 185 million users is the $52 that we're speaking to in the script. Now the other innovation areas that we're working on and Steven mentioned and Mike mentioned, we have not added those to our TAM at this point, like cryptocurrency for example. We have very, very high expectations for that in 2022. We've already had one client live. They've already run a transaction of cryptocurrency at this point. So super excited on that level, but at this point, that's not included in our TAM, but we'll update our TAM once we have a better sense of what we think the overall market take will be of that product. As it relates to BioCatch, again, that's a product that in some ways it helps us realize existing TAM because we presently have security products, and this just adds to the TAM opportunity or the component allocated to security products, so there was no change there. It's just a product where we view, we make investment to better realize the existing TAM.
spk04: Okay, great. That makes sense. If I could just ask one more. Just on the organic user growth, so is that mid-teens level something you guys think is sustainable, or do you think that should come down a bit more into the low teens as we move further out of the pandemic?
spk07: Well, when we hit the height of the pandemic and as digital transformation even further resonated in the marketplace, we saw highs of 17%. We knew that that was probably more event-driven than a sustainable level. And so now this quarter we back off and we're more in the mid-teens at 14%. That's closer to where we historically were prior to the pandemic. So it's a level that we're more comfortable at. But you also have to keep in mind that the market is mid-single digits. So it's anywhere from 5% to 9%. And so at 14%, we're doing, or our clients, through the use of our platform, are about 2x what the markets are growing. So as we get larger in scale, we expect we'll normalize more back to the overall market, but we still have a runway of more mid-teen growth before we reach that level.
spk04: Okay, got it. Thank you. Good questions.
spk08: From William Blair, we have Bob Napoli. Please go ahead.
spk01: Hello. Hey, Mike, congratulations. I've known you almost since the early days of this company, and congratulations. You've done an incredible job, and I wish you the best.
spk03: Thanks, Bob. Stephen was telling me, by the way, that the transcription will just say, inaudible parent-parents.
spk01: I'm so glad that that's going to turn out. Well, a question on... on MK decision and the acquisition. And you paid $20 million for it, and it's like a $25 million earn out. So what is that predicated upon? What is the target or the goals, I guess, for MK decision that would allow the seller to earn that additional $25 million?
spk07: Yeah, so Bob, as you can imagine, I mean, given that this is an early stage company where we primarily bought or acquired technology and talent, in order to convey the right level of value, we needed to share a risk with the sellers. And through that, we constructed, in some levels, there's some, I would say, you know, average difficulty in achieving revenue objectives, but to achieve the full 25 million, there's some pretty lofty revenue goals and those are all based on 2022 and 2023 revenue targets.
spk01: Okay, thank you. And then just the crypto trading product, when did you start developing that and what kind of demand are you seeing for that? capability.
spk06: Hey Bob, this is Steven. So we started, yeah, we started developing that right, really kind of right after we signed the partnership with NYDIG. So we started developing it within, I guess, about 45 to 60 days. We had our kind of a working, not just a prototype, but working function to their test systems. And then we worked with a few early clients, and like we mentioned earlier, one of that's already live with it, worked with a few early clients to kind of do the first kind of trades. I think we were the first one to really kind of work out a lot of the kind of API things with NYDIG. As far as the kind of appetite for it, I would tell you that it's hardly any conversation do we have with our client community where they're not interested in this. Really, the big question is, it's like, who wants to go first? So fortunately, we found a few people that wanted to go first, both on the bank and on the credit union side of multiple sizes. But I would tell you that I don't know that I've spoken with anyone that said, you know, we're just not interested in this at all. So I think it's mainly getting the first few out there over the next 30 to 60 days and then obviously looking at the metrics, looking at the way it performs, you know, what kind of, you know, what are the, if there are any gotchas or anything or new processes that the financial institution, you know, has to put into place before you'll see kind of the broad or, you know, the late majority start to hop on board. I don't know if that answers your question.
spk07: Yeah, and Bob, just to add further, You know, there is some, you know, regulatory hurdles that, you know, financial institutions are looking at, and they want to make sure from a regulatory perspective. Because crypto, while it may not be new for our teenage sons and daughters, you know, it's new in the banking world. And so they're very careful in how they want to approach that. That's my first comment. The second comment, and Stephen made a very good point, And we moved very quickly on the development of integrating this solution into our platform. But it's important to note that many of the third-party revenue partners we have, these aren't just simply single sign-on type of offerings. To improve the user experience and to enhance our platform, there's a lot of development work and integration that takes place. And that's what differentiates us from the rest of the field when they're offering similar solutions.
spk01: Great. And if I could just sneak one last one in. Steven, the products, new product development of the products that have recently been launched and what's to come, which ones are you most excited about? Where do you see the most demand?
spk06: Well, it's the ones we mentioned. I get to pick out which ones to highlight on the call. I think probably one of the only ones I didn't, you know, besides NYDIG and BioCatch and obviously MKD, one of the ones that we were really excited about that we talked about at our client conference was really all the new card controls, you know, digital issuance and push provisioning. You know, Apple Card, when it came out a couple years ago, really set the standard that people have been trying to catch up ever since. And I will say that, you know, with all the various processors we're integrated to now, some of the things that we're doing with some of our early partner processors where, you know, you log in, you get your card, you can see the full digital card number, you can put it immediately to your Apple wallet, to your Samsung Pay or Google Pay. You know, that right there is really kind of an equalizer for, you know, the Apple card type of experience. So that would probably be one of the other ones that we didn't kind of just didn't make into the remarks that they were kind of already long as they were. That's probably the next thing. That's something that really drives a lot of revenue for our customers, and so that's why it's so near and dear to our heart.
spk07: And Bob, our ARPU now is $13.57, and that was on a previous ARPU opportunity of $38, and then it moves to $52 now that we've acquired Ilm KD. So we're still very thinly penetrated in our total platform. And the opportunity to grow ARPU is significant for us. And what we're doing on the call and what Stephen's doing is just the new innovation that will fuel even further organic growth multiple years out. But there's still a long way to go in penetrating our base with even the products that we previously have been speaking to and the products that we've had for many, many years. And what we're seeing now is in our client sales team, The client sales team is gaining a lot of traction and cross-selling product after the original order. And then also our new logo team is getting much more proficient and selling even more products and a richer product set on that initial order. So several things driving ARPU in this massive white space that we possess is certainly the underlying driver.
spk01: Thank you. Appreciate it.
spk08: And once again, if you do have a question, please dial star 1 on your phone keypad. And from JMP Securities, we have Pat Walravens. Please go ahead.
spk05: Hi, this is Joe on for Pat. Thank you so much for taking our question. Brian, just to stay on the ARPU expansion, I know you guys aren't explicitly guiding to 2022, but can you give us a sense of kind of how we should think about that ARPU expansion or growth of ARPU, kind of how that should develop into 2022? Maybe just a color around that.
spk07: Yeah, I mean we've really focused on the full revenue model and we outlined on the call really those four main drivers of it and ARPU is just one of those. As we look out over a multi-year period, how we've been modeling the business is 20% revenue growth coming, a minimum of 20% revenue growth coming from user growth and user growth in the most recent year or so, has been evenly split between organic user growth and adding new clients to our platform. Historically, it was about one-third user growth coming from organic user growth and two-thirds coming from new logos. So whether that trend stays at 50% allocated to each or we move more back to the one-third to organic, That still remains to be seen, depending on what happens in the market in terms of organic user growth. But as it relates to ARPU growth, we've modeled on a multi-year basis about 5% organic ARPU expansion. I think there's opportunity for us to expand that, not just through cross-sell, but also as we add more banks to the platform. Today we have 11 banks under contract. Seven of those are on the platform. Four of those are in implementation. But what's important to note is all of our banks on average represent about $30 of ARPU, so well above the $13.57. So that's why banks are such a core strategy for us because as you add business banking to the mix of products that they take, it has a significant impact on ARPU.
spk05: Great. Thank you so much.
spk08: And we have no further questions at this time. Ladies and gentlemen, that concludes today's conference. Thank you for joining, and you may now disconnect.
Disclaimer