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spk00: Hello, and welcome to Alchemy's first quarter 2022 financial results conference call. My name is Danielle, and I will be your operator for today's call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. I would now like to turn the call over to Steve Koch. Steve, you may begin.
spk04: Thank you, Danielle. With me today on the call are Alex Schutman, Chief Executive Officer, and Brian Hill, Chief Financial Officer. During today's call, we may make forward-looking statements about guidance and other matters regarding our future performance. These statements are based on management's current views and expectations and are subject to various risks and uncertainties. Our actual results may be materially different. For a summary of risk factors associated with our forward-looking statements, please refer to today's press release and the sections in our latest Form 10A and 10Q entitled Risk Factors and Forward-Looking Statements. Statements made during the call are being made as of today, and we undertake no obligation to update or revise any forward-looking statements. Also, unless otherwise stated, financial measures discussed on this call will be on a non-GAAP basis. We believe these measures are useful to investors in the understanding of our financial results. A reconciliation of comparable GAAP financial measures can be found in our earnings press release and in our quarterly filings with the SEC. I'll now turn the call over to Alex.
spk01: Thank you, Steve, and thank you all for joining us today for our first quarter 2022 earnings call. I'm pleased to report that Alchemy delivered another quarter of strong performance. Brian will provide details in a few minutes, but I'd like to share some highlights. In the first quarter, We grew 35%, which was ahead of our expectations. We exited the quarter with 12.8 million live registered users on the Alchemy platform, which is up 2.8 million users year over year. In terms of sales, first quarter was solid. We had five new logos and four renewals of existing clients, and our sales pipeline growth exceeded our expectations. In addition, we have 40 new logos and considerable add-on sales and implementation already, all totaling $37 million in ARR. I continue to be impressed with our team, the Alchemy product portfolio, and the market opportunity we have in front of us. And thank you to all of our Alchemists for your passion and execution. You started off the year very well. Last week, we held our annual user conference in Texas with 325 client and prospect attendees representing 149 financial institutions. This was the largest in-person event in our history, and through many hours with clients, prospects, and partners, I heard a consistent theme of mandatory innovation. The industry knows that it has a significant opportunity to transform and become the kind of service that customers demand in a digital age. Our clients understand that a good digital experience attracts and retains customers. In fact, in a study we sponsored on generational preferences in banking conducted specifically for this conference, 80% of Americans say the quality of their digital banking experience is essential to a new firm becoming their primary financial provider. And 46% of Gen Z and 50% of millennials have had such a bad experience with a financial provider's digital offering that they open an account at a new company. I'd like to share with you some of the specific areas of digital banking that were top of mind with our conference attendees. First is user experience. Our customers want to digitize as much of the banking experience as possible, and they need a great user experience to make that happen. We've always been passionate about delivering a user experience that based upon independent mobile app store ratings It's one of the best in the market. Our investments in functionality, ease, speed, and integration are why we continue to grow faster than any major digital banking provider. And in a few weeks, we will release a new mobile platform that includes an enhanced user experience and one that enables our clients to customize and extend their mobile solution while also effectively doubling our mobile development velocity. Second is security. Alchemy has always been focused on providing security innovations to help our clients protect their institutions and customers. Our security partnerships range from machine learning to behavioral heuristics, biometric security, hard and soft security tokens, and digital authentication of users. Our ACH Alert acquisition is an example of providing products with security in mind. With this technology, in just the last 12 months, we've monitored the flow of of over $300 billion of ACH check and wire transfers, and account holders have stopped over $1.5 billion in fraud without financial institution intervention. Third is access. Alchemy has had a front row seat seeing financial institutions serve as the economic backbone of our communities. We've seen the power that's unlocked when consumers and businesses can interact with their financial institutions in an always-on digital world. It's why we acquired MK Decision, now known as Alchemy Ignite. Alchemy Ignite provides seamless onboarding and a frictionless experience for users to open deposit or credit accounts. And just one example of how we help expand access to financial resources. Fourth is data. Financial institutions know that targeted, personalized, and relevant communications are a requirement. In a study I referenced previously, we found that 64% of Gen Z wished that their financial provider offered a more personal digital banking experience. This is why we announced the acquisition of Segment, an innovative marketing data platform with 147 bank and credit union clients. Segment is a modern data platform that leverages machine learning and artificial intelligence to provide financial institutions with data-driven marketing strategy and analytics. Segment expands our TAM by a billion dollars, adds immediate breadth to the Alchemy product portfolio, enhances the value of our data set, and helps our clients generate incremental and attributable revenue on the Alchemy platform. Segment is also a great complement to our most recent acquisition of MK Decision, as I said earlier, now called Alchemy Ignite, Alchemy can now offer a complete solution for every stage of the end customer life cycle, from account opening to servicing and engagement to cross-sell and back to account opening. And with very little overlap in the Alchemy and segment client bases, we see a clear path to broaden our combined relationships in the market. I'm also encouraged by the resilience of our customer base. About a month ago, I met with 17 customer CEOs And they told me that cash deposits surged since the beginning of the pandemic, which weighed on net interest margins. However, they were having some confidence that they'd see a recovery in certain types of loan demand. And these leaders are aware that continued innovation will be key to strengthening their businesses in the next cycle. We also continue to see elevated M&A activity among the 10,000 financial institutions in the marketplace. And as we've said before, The institutions that we serve are acquirers in this market, and their digital user growth, which was 14 percent in 2021, is typically higher than the market average. For our part, we continue to see strong demand for digital banking innovation, which creates growth in our pipeline as banks and credit unions view digital banking as core to their strategy, and they need a partner like Alchemy. Here's a great first quarter. And more than ever, I'm convinced we're on the right track with our focus on five areas. Number one, we are committed to becoming the digital banking provider of choice for banks while maintaining our market leadership position with credit unions. Number two, we will continue our focus on growing add-on sales, and we're seeing good progress here as evidenced by our financial performance this quarter. Number three, we continue to allocate investment to make our platform the foundation of our clients' digital banking infrastructure. Customers I talked with at our conference said that they want an extensible platform that allows them to plug and play FinTech innovation. Fourth, we are strengthening our focus on talent, ensuring that Alchemy remains an attractive employer in the market and makes the right investments to keep our teammates and grow their careers. And fifth, we will remain agile on the M&A front. A recent acquisition of Segment demonstrates that we are measured and strategic about acquisitions, and I expect to continue that thoughtful approach. In closing, thank you again for joining the call to hear about Alchemy's progress and the road ahead. I can speak for the management team and the entire company when I say that we're proud of the results we've delivered to date, and we are energized by the opportunity in front of us. With that, can we turn the call over to Brian?
spk02: Thanks, Alex, and good afternoon, everyone. In the first quarter, we continued to execute and deliver strong financial results. Let's begin with revenue. In Q1, we achieved revenue of $44.8 million, which outperformed the high end of our financial guidance by $800,000 and represented growth of 35% compared to the prior year. This was driven by continued strong performance across all our primary revenue drivers. We implemented three new logos in the quarter, bringing our digital platform client count to 179 compared to 156 in the prior year. As a reminder, we expected the first quarter of 2022 to be the lowest in terms of new implementations, which is consistent with 2021, and we expect the cadence for the remainder of the year to be in line with our 2021 as well. For example, We now have 40 new logos representing 1.6 million digital users in the process of implementation. During the remainder of 2022, we expect to implement financial institutions from our backlog representing 1.4 million digital users. We exit the quarter with 12.8 million registered users live on the platform, up 2.8 million or 28% compared to last year, and up 464,000 sequentially. Over the last 12 months, digital user growth continues to be driven by two areas. First, we've implemented financial institutions supporting 1.3 million digital users. And second, our clients have increased their digital user adoption by 1.5 million users representing 15% growth. We continue to drive RPU through add-on sales and hire new client RPU, growing revenue per user to $13.80 at 3% compared to the prior year quarter. This compares to our blended market opportunity of approximately $54 per user, excluding the segment market opportunity, which I will address momentarily. Subscription revenue grew 36% compared to the prior year quarter and represented 96% of total revenue. We increased annual recurring revenue, or ARR, by 32% and exited the first quarter at $177 million. It's important to note we currently have over 37 million of ARR and backlog for implementation over the next 12 months. As we begin 2022, demand for our products remains strong. We are excited to start the year with stronger sales execution than experienced during the first quarter of 2021. In addition, new sales opportunity creation continues to gain momentum with our sales pipeline over double the amount of the year-ago quarter. Our new sales performance for Q1 2022 outperformed the prior year for both the quarter and a trailing 12-month basis. Our client sales team continued to build on their add-on sales success, representing just over 40% of new sales in the first quarter. This team also renewed four clients during the quarter. We are very excited with the continued success from our client sales team and expect this to be an area of continued growth and investment. We now serve a TAM of nearly $11 billion. This includes $1 billion in TAM related to our recent acquisition of Segment. And as the premier digital banking provider in the space, we believe we have a significant opportunity to expand our TAM, both through product development and M&A activity. Now turning to gross margin and profitability. Our target operating model is 60% to 65% non-GAAP gross margin as we scale our revenues. We expect to achieve this at a pace of 200 to 300 basis points of gross margin expansion on average per year. However, in some years or quarters, gross margin expansion might exceed our average objective. Conversely, in some years or quarters, we may experience lower expansion resulting from investment and M&A activity. For the first quarter of 2022, non-GAAP gross margin was 58% compared to 55% in the year-ago quarter. Expansion was driven primarily by revenue scale, greater utilization and cost efficiencies in our client implementation, client support, and client success functions, and was somewhat offset by higher costs associated with our third-party revenue relationships and gross margin dilution from our M&A decision acquisition. Please note that M&A integration in investments and post-sale activities such as our client implementation team will constrain margin expansion for the next few quarters. Moving to operating expenses. For the first quarter of 2022, non-GAAP R&D expense was 12.3 million or 27% of revenue. A year ago, R&D represented 32% of revenue. The margin expansion is primarily attributable to revenue scale, but we continue to grow R&D on an absolute dollar basis or 16% when compared to the prior year quarter. Non-GAAP sales and marketing expense was $7.1 million, or 16% of revenue. In the year-ago quarter, sales and marketing represented 15.7% of revenue. The primary driver for the uptick is headcount investments in our sales and marketing teams as we scale for our next phase of growth, the addition of a chief revenue officer to our executive team, and the return to pre-pandemic sales activities such as industry conferences. Non-GAAP General and administrative expense was $10.9 million, or 24% of revenue. In the year-ago quarter, G&A was approximately 27% of revenue. The margin expansion is primarily attributable to revenue scale. During 2021, we experienced growth in G&A expense throughout the year as we absorbed incremental public company costs. We now have reached a sustainable level and expect to leverage G&A expense as a percentage of revenue as we evidenced in Q1 of 2022. Our adjusted EBITDA loss for the first quarter was $3.6 million, better than the high end of our expectations and considerably better than the year-ago quarter. As a reminder, our goal is to balance investment opportunities with revenue growth and to maintain a good line of sight toward adjusted EBITDA positive, which we expect to achieve as we exit 2023. Now, moving on to the balance sheet. We entered the quarter with just over $299 million of cash and marketable securities and representing a $9 million net use of cash during the quarter. We closed the segment acquisition on April 25th for consideration of $135.5 million. On April 29th, we amended our credit agreement, which now includes Silicon Valley Bank, Comerica Bank, and CIBC. We are very excited to partner with these financial institutions. The amended credit agreement will mature on April 29th, 2025, and it expands our revolver from $25 to $40 million. It expands our term loan from $25 to $85 million. The amended credit agreement also allows us, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $50 million. We funded the segment acquisition with approximately $60 million of incremental term debt and $75.5 million of cash from our balance sheet. As evidenced by our acquisition of segment, We continue to seek opportunities to use our balance sheet and access to capital to accelerate technology growth and expand our addressable market through M&A. We approach M&A with conservative guidelines around ROI, deal size, and portfolio integration, and we expect to continue with this approach going forward. Now turning to guidance. In the second quarter of 2022, we are providing guidance for revenue in the range of $47.5 million to $48.5 million, and adjusted EBITDA loss of $7 million to $5.5 million. Our Q2 revenue guidance includes approximately $2 million from the segment acquisition. Our Q2 adjusted EBITDA guidance includes incremental costs from our client event co-lab, strategic projects incremental to Q1 related to our AWS environment, and go-to-market strategy, talent acquisition shifting from Q1 and an expected small loss from the segment acquisition as we begin integration. For full year 2022, we are raising our guidance and now expect full year revenue in the range of $198 million to $201 million, and an adjusted EBITDA loss of $21 million to $18 million. Our full year guidance includes approximately $9 million of revenue in a range of negative $1 million to an immaterial positive amount of adjusted EBITDA from the segment acquisition. We expect segments annual recurring revenue under contract at December 31, 2022 to be in the range of $15 to $17 million. This represents a growth rate of 30 to 50% based on the same metric in the prior year. In addition, The full-year adjusted EBITDA guidance continues to assume moderate pressure on wages resulting from an increasingly competitive environment for recruiting and retaining talent. This continues to be an area of focus and is key to our success in 2022 and beyond. To summarize, we posted a strong first quarter, closed a substantial acquisition that expands our TAM by $1 billion. We continued our good progress in sales, implementations, technology infrastructure, and human capital. and we continue to improve our position in the marketplace. With that, I'll hand the call to the operator for questions.
spk00: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from Mayank Kamden of Needham. Please go ahead.
spk03: Hey, good afternoon. This is Sam Salbas on for MyInc today. Thanks for taking the questions and congrats on the results. I was wondering if you guys could talk a little bit more about the segment acquisition and your expectations as far as cross-selling the segment offering with the core Alchemy platform. Thanks.
spk01: This is Alex. Thanks for the question. We're excited about two things. Number one, this is a very attractive product. as a standalone sale, right? So the companies built themselves into an attractive company with, as I said earlier, well over 100 customers selling segment directly to financial institutions. And we will continue that motion and expect success with that motion. We're also very excited about cross-selling to the Alchemy base. Our customers... have always wanted, we've had products in this space, but our customers have always wanted to use data to improve their, the way that they personalize their marketing offers and targeting, and then also be able to deliver offers back into the mobile product, if you think about it, as a channel. So you would take data from segment and allow a customer to better target a customer and develop an offer and make that offer, but then also distribute that offer into the Alchemy mobile product as a channel. To give you an example, we closed the acquisition right before we started our customer conference. And so the segment folks were at our customer conference, and obviously our customers were there. The breakout sessions for the segment topics were standing room only, and there was a lot of enthusiasm from our customer base. So in summary, we got a great opportunity to sell this product and technology standalone without the Alchemy product, and we also see a lot of value that's created for our customers in selling segment back into our customer base.
spk03: Got it. That's very helpful. Thank you. And then just a quick follow-up. I was wondering if you guys could talk a little bit more about some of the new business wins and renewals from the quarter and what the mix was there between banks and credit unions.
spk02: Yeah, that's great. In Q1, we had a very successful quarter in new cells in a couple different areas. Primarily when you compared a prior year, either on a quarter or trailing 12-month basis, Q1 resulted in a significant start for the year, which we're super excited about. But it was heavily dominated for banks, which is exciting for us. Out of the five new logos that we had, four of those were banks. On average, the financial institutions averaged just over $2 billion of assets across all five, and they took about 15 products, resulting in a RPU of $25, and that compares to our $13.80 company average. So we're continuing to see each quarter, each year, our sales force is getting very good at selling more product as we expand the platform in that initial order. What's equally as exciting during the quarter is our client sales team. Client sales team represented over 40% of our business in total TCV that we added during the quarter. That's a step up from the last year. It's a step up from Q4. Now, it was a lower new logo quarter for us, so you would expect client sales to represent more of the sales during the quarter, but on a year-over-year basis, client sales was up significantly So, again, great momentum coming out of that team. The four renewals that we had represented close to $2 million of ARR collectively across those renewals, and we were successful increasing the run rate from that business 7%, fairly evenly split between price increase on the existing product and adding new product in ARPU as a part of the renewal. In 2022, we expect to renew close to $20 million of ARR, which up to this point in our life cycle, we've only renewed across all years $20 million in ARR. So a very exciting renewal year for us, and we hope to perform at the same level that we have in the past.
spk03: Awesome. That's super helpful. Great to hear. Thanks for taking the questions again and congrats on the results.
spk02: Great. Thank you.
spk00: There are no remaining questions. Thank you for attending Alchemy's first quarter 2022 conference call. You may now disconnect.
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