Alkami Technology, Inc.

Hello and welcome to Alchemy's second quarter 2022 financial results conference call. My name is Andrea and I'll be your operator for today's call. All participants will be in 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 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I'll now turn the call over to Steve Kalk. Please go ahead.

Thank you, operator. With me on today's 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 different materially. For a summary of risk factors associated with our forward-looking statements, please refer to today's press release and the section in our latest Form 10-K and 10-Q entitled Risk Factors and Forward-Looking Statements. The statements made during the call are being made as of today, and we undertake no obligation to update or revise any forward-looking statements. Also, unless otherwise stated, financial measures discussed on this call will be on a non-GAAP basis. We believe these measures are useful to investors in the understanding of our financial results. A reconciliation of comparable GAAP financial measures can be found in our earnings press release and in our quarterly filings with the SEC. I'll now turn the call over to Alex.

Thank you, Steve, and thank you all for joining us today. I am pleased to report another quarter of strong performance. In the second quarter of 2022, Alchemy grew revenue 38%, once again ahead of expectations. We also exited the quarter with 13.3 million live registered users on the Alchemy platform, up 2.6 million users compared to the prior year. This past quarter, we continue to make progress on our key priorities, which we shared with you at the beginning of the year. The first two are to become the digital banking provider of choice for banks, which is similar to our position with credit unions, and increase your add-on sales. In the first six months of 2022, we have outperformed our expectations in both of these areas. We signed seven new platform logos in the quarter, including two more banks. This brings our first half new logo wins to six banks and six credit unions. The six bank wins so far this year outpaced the five wins we had during all of 2021, and our momentum continues to build. Our qualified pipeline for the next 12 months remains at an all-time high, and almost 30% of the pipeline is with banks. In Q2, add-on sales reached an all-time high as a percent of new sales. Customers want to add products to their banking platform that allow them to offer differentiated digital experience for their customers, and they demand ease of integration into their platform and fast implementations. This has been a focus of Alchemy, and our add-on sales results indicate that we are meeting the market's requirements. Our results are evidence of the continued passion our Alchemists have to help create the greatest digital bankers on the planet and serve their members and their customers with a flawless experience. Thank you to my fellow alchemists. You truly are the best. I continue to get questions on the macro environment from the investment community, so let me share some thoughts. At our user conference a few months ago where we interacted with over 300 clients and prospects, and in the weeks following with dozens of customer interactions, I continue to hear some common themes. First, despite volatility in the economy, our clients require modern banking solutions at a level of functionality that you see in online shopping and entertainment. They consider it a mandatory innovation. More than ever, people want a bank where the technology is seamless, full service, and secure. And for many, they need this more than they need a local branch, effectively making the digital platform the front door of the financial institutions. Our own research confirms this with consumers ranking the digital experience as the most important attribute in selecting a new FI ahead of branch convenience and ATM locations. Among many of the thousands of FIs serving the U.S., user counts are on the rise as evidenced by the double-digit user growth we continue to see among our clients. Some of that is demographically driven, but there are other factors. Historically, we managed our personal finances from one or two accounts with a single institution. But today, we may have as many as a dozen accounts across multiple institutions. This means that just because somebody opens a trading or crypto account elsewhere, NFI does not necessarily lose that customer. And in fact, our forward-thinking clients see digital product proliferation as a growth opportunity. And the objective of our platform investments is to help our clients expand their relationships and serve as an aggregator for financial innovation. Another theme is while watching the digital front door and keeping customers satisfied, FIs also need to streamline their capabilities, ensuring they're using technology to optimize their operations and reduce expense. Finally, a theme that I consistently hear is that FIs are increasingly realizing the value of the data they have and its ability to provide their customers with a better experience and drive revenue opportunities. Our own research confirms this. Nearly two-thirds of millennials say that relevant product recommendations are critical in their digital banking experience. These themes are why, in a challenging macro environment, we continue to see strong demand. We have one of the largest qualified pipelines in our history and a packed implementation schedule. There are few digital banking companies who can provide a modern, cloud-based, end-to-end solution and have the capacity and track record to manage 1.5 million or more user implementations at a time. Alchemy is proud to be a leader and one of the fastest growing companies in the market. I'd like to give you some product updates. With our sustained platform and product investments, we continue to bring new products and capabilities to the market. Let me give you some examples. First, we are increasing the pace in business banking. Over the past few years, we've made significant investments in our business banking capabilities. Today, we can serve our target bank market with our retail and business offerings, just as we currently serve business customers at our credit union clients. And over the last year alone, we allocated tens of thousands of development hours to add capability to our product so that we can expand our target market to larger institutions that have more sophisticated commercial customers. That investment has been focused on areas where business customers need functionality, including more sophisticated money movement, customer service, and advanced user roles and rights administration. At the same time, we built out a sales and marketing effort focused on the needs of banks And this is making an impact. We're getting invited into more opportunities, winning against well-known incumbents, and our bank pipeline is now approximately 30% of our total qualified pipeline. One of our bank wins in June came to Alchemy specifically for our business functionality and our commitment to keep them best in class digitally. I met them at our user conference and they commented on the power of hearing candid experiences from other Alchemy clients and on the value of a single code-based SaaS application that allows innovation to get to our clients faster and with more reliability and security. Second, our update on data products and our segment acquisition. Most FIs know that generic emails and texts are becoming ineffective. They know that personalized and relevant communications are a requirement if you're going to reduce churn and expand relationships. Last quarter I mentioned a study we did in which 64% of Gen Z wished that their financial provider offered a more personal digital banking experience and will choose an FI based on that capability. This is where segment helps the market. Most FIs already have some idea of certain customer attributes such as their income, spending pattern, credit ratings, and propensity to use other services at the FI. What they have not been able to do until now is automate making that knowledge actionable. For example, for a financial institution to offer, approve, and open a personal or small business loan or credit card, they do not want to force their customer to go through a time-consuming application process. With an integrated segment solution offered by Alchemy, NFI can not only identify the right targets for products, but can also automate the offer of the right product to the right customer at the right time using actionable data with our key lifestyle indicators. That capability combined with our digital account opening solution, Ignite, enables NFI to execute from identification to offer to account opening and ongoing service all through a mobile device. This not only helps Alchemy expand in new client relationships, but it improves our client's top line and deepens their customer loyalty. With over 1.7 billion personalized messages delivered segment is the leader in this space and we are excited to bring this capability to all of our clients. Third, let me give you an update on our mobile platform transition. Last quarter, I told you we were launching a new mobile platform that includes an enhanced user experience, which enables our customers to customize and expand their mobile solutions while basically doubling our mobile development velocity. That launch went live in Q2 and client feedback is excellent. All recent client launches have been on the new modernized mobile platform, and we are currently in the process of publishing the new apps for all existing clients. Over 2 million of our users are already on the new apps, and the remaining 11 plus million users will have the new apps deployed over the next few months. This further demonstrates our ability to deploy new technology. Finally, let me give you a strategy update. At the beginning of the year, I shared with you five key priorities. To recap, first, we are committed to becoming the digital banking provider of choice for banks while maintaining our market leadership position with credit unions. When we started the year, we talked about five to 10 bank wins for the year, and we were ahead of schedule. Second, we will continue to focus on growing add-on sales. We're seeing good progress on this priority with add-on sales representing over 40% of sales so far this year, and we are taking actions to drive continued growth in existing client sales. Third, we continue to allocate investments to make our platform the foundation of our clients' digital banking infrastructure. All of our clients have an analog back office, and they need to offer innovative digital products and experiences to their customers. Alchemy will be the operating platform that connects their past with their future. Our focus is to become the most scalable, an extensible platform in the market, and that's why we've gone from six third-party integrations in 2014 to 27 in 2018 and 42 today. Fourth, we're strengthening our focus on talent, ensuring that Alchemy remains an attractive employer in the market. By embracing a remote work strategy, we've reduced our time to hire, and we've been able to fill some very hard skills to find, some key skills to find. And then fifth, And finally, we will remain agile on the M&A front. For the remainder of 2022, I expect we'll be focused on the integration of segment, our bank strategy, and our platform scalability. But if we see opportunities that fit our portfolio and drive value for our customers, we'll pursue them within our capital return requirements. In closing, thank you again for joining the call to hear about Alchemy's Q2 results. We are proud of the quarter. And we are energized by the opportunity in front of us. And with that, let me turn the call over to Brian.