Alkami Technology, Inc.

Hello, and welcome to Alchemy's third quarter 2022 financial results conference call. My name is Danielle, and I'll 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'll now turn the call over to Andrew Venus. Andrew, you may begin.

Thank you, Operator. With me on today's call are Alex Shootman, 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 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 will now turn the call over to Alex.

Thank you, Andrew. Thank you all for joining us today. I'm pleased to report another quarter of strong performance. In Q3 2022, Alchemy grew revenue 34%, once again ahead of our expectations. We also exited the quarter with 13.7 million live registered users on the Alchemy platform, up 2.3 million users compared to the prior year. This past quarter, we continued 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, similar to our competitive position with credit unions, and increase our add-on sales. In the first nine months of 2022, we've outperformed our expectations in both of these areas. We signed 10 new platform logos in the quarter, including one bank. This brings our year-to-date 2022 new logo wins to 15 credit unions and seven banks. The seven banks' wins so far this year outpaced the five wins we had during all of 2021. And our momentum continues with an additional four banks closed following the end of the third quarter. Our add-on sales momentum continues with Q3 representing the best quarter of the year in terms of total contract value, and add-on sales represents 34% of total sales for the first nine months of 2022. In addition, we renewed six client contracts during the third quarter and 11 client contracts year-to-date. The 11 client renewals represent 5% of our ARR and added $40 million to our client contract backlog, which is now $755 million. We also expect to renew an additional five to ten clients during the fourth quarter. Our results continue to demonstrate the energy and passion our alchemists have to create great outcomes for our clients and position Alchemy as the preferred digital banking provider in the industry. Thank you to my fellow alchemists. I am inspired by you daily. You know, I often get questions on the macro environment from the investment community, so let me share some thoughts based upon customer interaction since our last earnings call. The first three themes are consistent since the beginning of the year. The fourth is a change. First, our clients and target market require modern banking solutions at a level of functionality all of us experience in every aspect of our lives. They consider it mandatory innovation, and we expect this trend to continue. People want to bank. where the technology is seamless, modern, and secure. And for many, they need digital banking more than they need a local branch, effectively making the digital platform the front door of the financial institution. Just last week, I talked with the president of a bank prospect with almost $10 billion in assets who told me, Alex, a great digital experience has become a must-have channel for us. Our customers demand an easy-to-use e-branch that is constantly refreshed with new products, and services. Second, digital user accounts continue to rise, and we are experiencing double-digit user growth amongst our clients. This is primarily driven by consumers and businesses seeking financial choice. Historically, we managed our finances from one or two accounts, but today, businesses and consumers have as many as a dozen accounts across multiple institutions. Forward-thinking FIs see digital product explosion as a growth opportunity, and our own research finds Greater financial product penetration is driven by higher digital banking engagement. Third, FIs are realizing that the data they have in their core and digital banking systems is the best data available to target and deliver personalized and relevant messages and offers. The transactional data that FIs have about their customers is uniquely their own and unavailable through other sources, including those coming from web searches and visits. They understand that they have an opportunity to create a walled garden in which they understand their customers, segment their customers effectively, create high conversion offers, and deliver those offers in channel to their customers. And fourth, and this is the change, our customers have told us that the last several years have been an environment in which they had deposits and were focused on loan growth. And while they are still focused on loan growth on the deposit side, they've experienced a rapid shift to a need to attract deposits. And to attract deposits, they're investing in digital onboarding technologies. And some of our credit union customers see commercial accounts as a way to bring in new deposits and are in need of a great digital business banking experience to attract new customers. These themes are why, in a challenging economic environment, we continue to see strong demand and have high growth expectations. Our sales pipeline continues to be stronger than any point in our history, and there are a few digital banking companies who can provide a modern cloud-based solution along with the capacity and track record to manage over 1.7 million digital user implementations at a time. Alchemy is proud to be a leader and one of the fastest growing companies in the market. And now I'd like to share with you a few product updates from the last quarter, starting with business and commercial banking. Today, we can fully serve our target bank market with our retail and business portfolio. But we wanted to pressure test the competitiveness of our offering, and during September, we hosted a focus group of executives from banks ranging from $3 billion to $160 billion in assets who are not currently using Alchemy's digital banking product. After spending two days together reviewing demonstrations of our business banking products, they confirmed that our business banking solution is competitive and differentiated. A key theme in the discussion involved Alchemy's approach when developing our products. We did so by investing hundreds of hours sitting with business end users and financial institutions, better understanding their pain points in business banking. Whether in the complexity of assigning privileges to business users, the challenges in managing transaction origination limits for cash management clients, or the time wasted on administrative errors that can be disruptive for the end user and the financial institution. As one of the focus group participants put it, Alchemy has built a product with banks and did not rely only upon Alchemy's view of what a bank should need. These discussions validate our strategic direction and give us confidence in our ability to have the same success in the bank market we've had in the credit union market. Next, I'd like to update you on our data, analytics, and marketing products. As I stated earlier, most FIs know personalized and relevant communications are a requirement in reducing attrition and expanding relationships. Our 2022 acquisition of Segment is targeted at this strategic priority for our clients, and I am excited about our product progress last quarter. We completed the initial integration of the Alchemy digital banking platform and Segments data analytics and marketing products. This means our clients are now able to seamlessly leverage the target audience from Segments key lifestyle indicators directly in the online and mobile banking experience. Alchemy clients are able to deploy user-specific content, driving product recommendations, financial coaching, and retention-oriented personalized messaging into the digital banking environment. Additionally, this integration enables Alchemy clients to attribute results to marketing campaigns by capturing and sending user interactions from the digital banking platform back to the segment solution. These enhancements are in the current release and being made available to our clients. This is the first step that moves Alchemy closer to our goal of being both a digital sales and service platform for FIs. Finally, I'd like to provide an update on the launch and rollout of our new mobile platform. As a reminder, this new platform was a complete redesign that includes an enhanced user experience, enabling our clients to customize and expand their mobile solutions while doubling our own mobile development velocity. We started launching new clients on the platform in mid Q2. And in Q3, we started moving existing clients. 86% of our clients are now on the new platform with the majority of the remaining clients set to go live by the end of the year, another proof point in Alkabee's ability to deploy new technology. At the beginning of the year, I shared with you five company priorities, and let me recap. First, we're committed to becoming the digital banking provider of choice for banks while maintaining our market leadership with credit unions. When we started the year, we talked about 5 to 10 bank wins for 2022, and we are ahead of schedule. Including new sales through today, we've added 11 bank new logos, and the year is not yet over. Second, we continue our focus on growing add-on sales. We saw progress on this priority during the third quarter, adding to our year-to-date success. Add-on sales represents over a third of sales so far this year, and are 120% higher than 2021 for the first three quarters. Third, we continue to allocate investment to make our platform the foundation of our clients' digital banking infrastructure. All of our customers have an analog back office and they need to offer innovative digital products and experiences to their customers. And it's our intent that Alchemy will be the operating platform that allows them to connect their past with their future. Our focus has become the most scalable, and extensible platform in the market. Fourth, we continue to strengthen our focus on talent, ensuring that Alchemy becomes the employer of choice in our market. For example, by embracing a remote work strategy, we have reduced our time to hire, and we've been able to fill key hard-to-find skills. And finally, fifth, we will remain agile on the M&A front. For the remainder of 2022, we will 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 will pursue them within our capital return requirements. In closing, thank you again for joining the call to hear about Alchemy's Q3 results. We're 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.