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spk06: My name is Sarah, and I will be your operator for today's call. signal conference specialist. By pressing the star key, you will be loaded by 0. 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.
spk02: Please note this event is being recorded. I would now like to turn the call over to Andrew Venus. Andrew, you may begin.
spk07: 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 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 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 filings with the SEC. I will now turn the call over to Alex.
spk13: Thank you, Andrew, and welcome, everyone. I am pleased to report another quarter of strong top-line performance and continued progress towards profitability. In the first quarter of 2023, Alchemy grew revenue 34 percent, once again ahead of our expectations. We exited the quarter with 15.1 million live registered users on the Alchemy platform, up 2.3 million compared to the prior year. And we achieved a $2.9 million adjusted EBITDA loss better than the high end of our guidance for the quarter. This result keeps us on track to adjusted EBITDA profitability, which we continue to expect by the end of this year. Let me start with a topic that I know is top of mind for investors since the recent failures of Silicon Valley Bank, Signature, and First Republic, the macro environment for regional and community financial institutions.
spk06: Since the end of March, I've been in the offices of 13 different CEOs of banks and credit unions. And those conversations, along with the data we see our own systems tell the same story. Our client base and target market has not been impacted by these bank failures. In my conversations, clients describe the bank collapses as driven by specific business models, risk management decisions, and the resulting mix of assets and liabilities that are different from those of our clients. The CEOs told me their businesses are sound, they're well capitalized, and they have low percentage of accounts above insured limits. Their focus is more upon the changing rate environment. They're experiencing high demand and the shifting cost of deposits.
spk13: In short, they are managing net interest margin in a dynamic environment. Each of these CEOs have been through many economic cycles. They reacted calmly to the bank collapses and our business strategies to adjust to the current economic situation. Each also told me that digital banking remains critical as they attract deposits and create and deploy new products. Our data tells us the same story as the CEOs. As a reminder, Because of the data architecture of our single code base, we can capture, store, and monitor anonymized transaction data. Across all of Alchemy's clients, only 0.91% of Alchemy digital banking users have any uninsured deposits. And an analysis of total deposits at Alchemy customers shows that the percentage of uninsured deposits declined from 16.78% on March 16th to 16.51 percent in April. While at the same time, there was a 0.25 percent increase in overall deposits. In summary, during a dynamic period for a few large super regional banks, Alchemy's target market remains stable. The CEO sentiment I've heard and the data from our system matches with the activity we're seeing in our sales pipeline, which so far has continued to grow. We're seeing normal sales cycles and have yet to encounter increased buyer uncertainty. In fact, as Brian will detail later in the call, our add-on sales to existing clients outperformed our internal plans for the quarter. We see this as evidence for continued demand for Alchemy's digital banking technology. Another question we've heard from investors is whether consolidation within the roughly 9,500 banks and credit unions in the United States will impact our growth. As a reminder, our target market is the top 2,000 financial institutions outside the megabanks. These are expansion-oriented institutions that see technology as critical to their growth strategy and are the primary acquirers in any industry consolidation. As an example, during the first quarter, one of our clients renewed their contract
spk06: adding approximately 190,000 users in connection with a merger of our related financial institutions. We expect those additional users to be added to our platform during 2024. And it will be added similar to a new logo implementation cycle. We cannot predict exactly when merger or acquisition like this will occur, but we expect to continue to benefit from industry consolidation as a result of our product and market focus. In addition to seeing 13 CE and their offices, I was able to see over 400 clients and prospects representing 191 financial institutions annual user conference in the Dallas area in April. This was the largest in-person event in our history.
spk13: reflected in continued interest in Alchemy's offerings. You're welcome to view a recap on our website, but here are a couple of items we shared with the attendees. First, we presented some new primary research by Alchemy that shows consumers expect personalization and an increasingly digital experience. Some highlights from the research include Fifty-five percent of consumers expect their preferred financial institution to know if they are under financial stress and proactively offer ways to help. Sixty-one percent expect their preferred financial institution to use their income and purchasing data to provide custom information, advice, and offers. And 44 percent prefer to open a checking or savings account completely online. And 78% of mega bank customers would be open to switching their deposit accounts over to a local or regional financial institution that offered better interest rates and a five-minute digital account opening experience. This is significant. Given a report from the Wall Street Journal that since 2014, Americans have forfeited $603 billion in interest by leaving their deposits in the five largest banks. Second, we outlined elements of our long-term product strategy, which is based upon consistent feedback from the market. Our target market wants to shrink the footprint of their core system to focus on their back office, and then they want a digital sales and service platform that integrates with their core and provides them the ability to personalize the customer or member experience. In response, The Alchemy long-term product strategy is focused in three areas. The first is to continue to be a great digital banking application. The primary decision criteria for anyone selecting or remaining with the digital banking technology are user experience and reliability. We continue to invest to make sure that our clients' customers have a great experience by extending our user experience development efforts to even more of their journey.
spk06: And in last quarter's earnings call, I outlined the activities underway to make sure that the Alchemy platform can continue to scale and deliver the reliability and performance expected out of an online banking application. The second part of our product strategy is to extend the notion of user experience to include making it easier for our clients and customers to use innovation by extending Alchemy's platform capabilities. Since 2019, $742 billion has been invested in FinTech, which has resulted in new capabilities for our clients' customers' desire. Alchemy will continue to build out extensibility elements of our platform, such as our SDK and API, so that our customers can easily integrate new product offerings. The third is to unleash at least the power of our clients data.
spk13: Financial institutions should be the best at creating individual experiences because their core in digital banking systems has the best data available to target and deliver content and measure the return on investment of their efforts. Alchemy will deliver specialized data and marketing technology to make it easy for our clients to create personalized digital banking experiences. In closing, I'm enthusiastic about our opportunity. We continue to see healthy demand, and our target market is still in the early stage of digital innovation. Our clients require modern banking solutions, and they consider investments in Alchemy to be mandatory innovation in their most important channel. As they seek growth, they're investing in digital onboarding technologies and business banking to attract new customers. And every client or prospect I talk with realizes their data will allow them to create personalized experience for their customers, and they are initiating their data strategies. Internally, we continue to build momentum on all of our key initiatives, and we continue to benefit from the scale built into our business. Altogether, this makes me confident in both our operational and financial objectives for 2023 and beyond. And now, I'll hand the call to Brian to take us through the numbers.
spk08: Thanks, Alex, and good afternoon, everyone. During the first quarter of 2023, we continued to deliver strong financial results and experienced healthy demand for innovation from new logo opportunities and our existing client base. For the first quarter of 2023, we achieved revenue of $60 million, which outperforms the high end of our financial guidance and represents growth of 34%. This was driven by strong performance across our primary revenue drivers. We implemented seven new clients in the quarter, bringing our digital banking platform client count to 206. We now have 42 new clients in our implementation backlog, representing 1.4 million digital users. We exited the quarter with 15.1 million registered users live on our digital banking platform, up 2.3 million, or 18%, compared to last year, and we've gone up sequentially 583,000 users.
spk06: digital users. Over the last 12 months, digital user growth continues to be driven by two areas. First, we implemented 34th financial institution supporting 1.4 million digital users. Second, our existing clients increased digital user adoption at 1.3 million users. Setting digital user growth, which turned just over 300,000 100,000 digital users, of which the majority is represented by a single client that transitioned off our platform during the third quarter of 2022.
spk08: We continue to maintain a very high gross retention rate of just over 97% measured in terms of ARR and digital users retained over the last 12 months. We ended the quarter with an RPU of $15.88, which is 15% higher than last year. This compares to our blended market opportunity of approximately $58 per user. The segment acquisition contributed 7% of ARPU expansion, along with ARPU expansion of 8%, driven by add-on sales success and the addition of new clients who tend to onboard with a higher average ARPU. Subscription revenue grew 34% compared to the prior year quarter and represents approximately 96% of total revenue. We increased ARR by 36% and exited the first quarter at $240 million. In addition, we currently have approximately $48 million of ARR backlog for implementation over the next 12 months. We continue to see healthy demand across our product portfolio. Our Q1 2023 new sales performance outpaced 2022 by over 40%. We signed six new digital banking platform clients for the first quarter, of which three are banks. Included as a new logo sale during the first quarter, an existing client merged with a related financial institution adding roughly 190,000 digital users. This demonstrates our go-to-market advantage resulting from a focus on the top 2,000 financial institutions and how this segment of the market may benefit from market consolidation. Our add-on sales focus continues to yield returns representing over 50% of new sales for Q1 2023 compared to 24%, and 37% for the 2021 and 2022 full-year periods. In addition to add-on sales, our client sales team is responsible for client contract renewals. During Q1 2023, we renewed three client-to-client relationships where we raised the ARR running rate 9%
spk06: through a combination of new product sales and higher minimum commitments. We expect to renew over 20 clients during 2023. Now turning to gross margin of profitability. For the first quarter of 2020-2023, the gap gross margin was 58.1%, slightly lower than the prior year quarter, representing 20 basis points of contraction, but 170 basis points higher than Q4 of 2022. Improving and our gross margin run rate compared to Q4 2022 results from leveraging prior implementation investment, improvement in our hosting cost unit economics, An improvement in third-party IP partner cost execution due to actions taken late last year.
spk08: Our near-term target operating model is non-GAAP gross margin of 65% as we scale our revenue. We expect to achieve our target gross margin at a pace of roughly 200 basis points of expansion on average per year, reaching the 65% level by 2026. Also, we expect to achieve a gross margin above 60% during Q4 2023 as we exit the year. Moving to operating expenses. For the first quarter of 2023, Non-GAAP R&D expense was 16.8 million, or 28% of revenue, 60 basis points higher than the year-ago quarter. Margin dilution was primarily driven by higher headcount as we've invested in our technology platform for scale. We expect R&D as a percentage of revenue to scale as we progress through 2023, especially in the back half of 2023. As a reminder, our target operating model is to leverage R&D to 20% of revenue while we continue to invest and expand our platform. We currently expect to achieve our objective during 2026. Non-GAAP sells a marketing expense worth $9.3 million, or 15% of revenue. In the prior year quarter, sales and marketing represented 16% of revenue. We expect to maintain or slightly improve our go-to-market efficiency as we scale the business and gain market share. In terms of the progression of sales and marketing expense throughout the year, bear in mind April is when we held our annual client conference, which results in approximately $1.8 million of higher spend in our second quarter when compared to other quarters of the year. Non-GAAP general and administrative expense was $12.4 million or 21% of revenue. In the prior year quarter, G&A was approximately 24% of revenue. The margin expansion is primarily attributable to revenue scale. We expect to leverage G&A expense as a percentage of revenue as we move towards our profitability objective with an expectation of 10% to 12% of revenue during 2026.
spk06: Our adjusted EBITDA loss for the first quarter was 2.9%. which is better than the high end of expectations and 18% better than the prior year quarter. We expect it to be adjusted We expect to be adjusted EBITDA positive starting in Q4 2023. As a reminder, our target operating model is to exceed an adjusted EBITDA margin of 20%, which we expect to occur for the full year of 2026, which coincides with the achievement of 65% gross margin. Now moving on to the balance sheet. We entered the quarter with just over $185 million of cash in marketable securities. and just under $85 million of debt. We are comfortable with our net cash position as it represents several multiples of capital necessary to reach free cash flow positive
spk08: which we will achieve a few quarters after becoming adjusted EBITDA positive. Related to our liquidity and the recent bank failures, Alchemy filed an 8K on March 13 of this year disclosing limited revenue and liquidity exposure with Silicon Valley Bank. This exposure was ultimately remedied by this first citizen's acquisition. Related to Signature Bank and more recently First Republic Bank, Alchemy possesses no revenue or liquidity exposure with these financial institutions. Now turning to guidance. For the second quarter of 2023, we are providing guidance for revenue in the range of $62.5 to $63.5 million and an adjusted EBITDA loss of $4.5 to $3.5 million. For the full year of 2023, We are raising guidance for revenue to a range of $257 to $261 million, representing revenue growth of 26% to 28%, and an adjusted EBITDA loss of $6 million to $3 million. Additionally, because of the impact of expense timing, such as our client conference has mentioned earlier, we expect the second quarter to be the high point of our adjusted EBITDA losses in 2023, modestly higher than the first quarter of the year. In closing, I'm very pleased with our continued execution both operationally and financially. We are demonstrating growing success in the market, continued discipline in our operating costs, and our commitment to drive shareholder value through both revenue growth and margin expansion. We remain on track to cross over 65% gross margin and a 20% adjusted EBITDA margin objective in 2026 all while establishing Alchemy as the premier digital banking provider in the marketplace. With that, I'll hand the call to the operator for questions.
spk06: Thank you. 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're using a speakerphone, please pick up your hands before pressing the keys. Draw your question. At this time, we will pause momentarily to assemble our roster. Our first question comes from my stand-in with Nita. Please go ahead. Thank you. Good evening. First, congrats on the quarter in the midst of all this uncertainty. So Alex, I just wanted to ask you, given that this crisis seems to be spreading with news breaking this evening with PacWest Bank also now exporting options.
spk01: Do you feel any concern that if this does continue to spread at some point that could have some implications for incremental opportunities as you look to expand into the bank market? Could you maybe spend a little bit more time giving us your thoughts on potential opportunities if the crisis gets worse.
spk13: Yeah. If you look at the banks that have been affected, these are banks with many tens of billion dollars of assets that are publicly traded banks. And as I said earlier, they have specific business models. I had one customer tell me, hey, Alex, that wasn't a run on a bank. That was a run on a business model. So they have specific business models that are causing challenges right now. And our target market doesn't have those business models. And so that's why the customers that I talked to individually said, look, I didn't get a call from one customer, got one call from a teenager who had a $5,000 loan savings account that wanted to know if their money was going to be okay. These customers all told me that, you know, they had maybe 92, 93% of their accounts were under deposit limits and they had enough capital cushion to cut, to cover anything that was, that was over a deposit limit. And so, you know, I'm not Nostradamus, I can't predict the future, but the, the problems that are, that impacted the three banks that failed are, And then my understanding of PacWest business model, just different business models in our target market.
spk01: Got it. That's helpful. And then I just want to ask you a follow-up question. Again, you talked a little bit about the product portfolio and the attach rate. So if you look at your core solutions, I think you have 26, if I remember correctly. Maybe that has expanded over time. Could you point to areas you're seeing the most traction in terms of interest from your clients and maybe areas that you might be seeing softer trends? Just give us a little bit more color on the portfolio, how that's shaking out as you talk to customers in terms of interest from their side. Thank you.
spk08: Hey, Mike, this is Brian. I'll take this question.
spk09: Our clients, and we talked about this at CoLab, but they truly view our platform as a service.
spk06: channels as well as a service platform. So it helps them drive revenue. It helps them drive engagement, as well as helps them on the operating cost side of their business. So as we enter into a what can be viewed as a challenged economy, Our platform really helps in both areas where they're focused. So where we normally see for new logo opportunities is there's about 11 products that cut across our product portfolio across our eight product family categories that are almost on every deal. And then depending on the operating strategy and the priorities of the financial institution, there's another 10 or so products that tend to get taken at different take rates across our product portfolio.
spk08: And those can be in the areas of security, they can be in the areas of financial wellness, in some cases in the areas of client services, which includes like chatbots and things of that nature. So it just depends on the client's operating strategy. Also what we see in our client sales team, where they're selling into our existing client base, is traction across those same last three categories. So where we have seen in 2022 and then also in early 2023 is a lot of take within our money movement products, which includes bill pay and account or instant ID verification. Within client services, I touched base on kind of chat or conversational AI type products. And then within fraud and security around account takeover and then also our ACH alert products.
spk13: Maybe if I just, if I layer on top of that, kind of this fits with Brian's narrative, the three main kind of business topics, if you will, that customers will have will be around fraud, right? And how do you help me protect my members and customers against themselves? so the whole account takeover piece. Brian talked about money movement, everything related to any type of digital issuance with a card or any kind of digital account opening, anything that they can do to remove friction for a customer or member, and then data. They are all understanding that they have to begin to differentiate themselves not just through a great user experience, but through the way that they personalize that experience. And they have to do that with the way that they use data. And that can create service opportunities for them, or that can create additional product sales opportunities for them. But think of the three big buckets of fraud, money movement, and data.
spk06: That's a great color. Thank you so much. Thank you for taking my question. Our next question comes from Bob with William Blake. Please go ahead. Hey, thanks so much for taking the question. This is Adib on for Bob. So just on that theme of some of the regional banking turmoil, it sounds like demand and sales cycle remains pretty healthy still. But could you kind of comment? on how your conversations are trending with your credit union customers versus your banking customers. And then just kind of remind us how much of the business is being driven by credit unions. Thank you. Yeah, this is Alex. I'll take the commentary part and let Brian speak to the mix between bank and credit union. As I said before, I
spk13: I spent time talking to both bank CEOs and credit union CEOs and both existing customers and prospects. And we have to remember, you know, you kind of have three tiers of institutions in the states. There's a half a dozen mega banks. These are the ones that we read as the, you know, too big to fail banks. And then you've got you know, maybe 20 or 30 banks that are in the $50 billion and above assets, right? And then there's 9,000 banks and credit unions that are local institutions that will have, you know, between 500 and 2,000 people working for them. And those are the institutions that are buying our products. We didn't sell anything to First Republic Bank or to Silicon Valley Bank. And those CEOs, as I said earlier, have boards that are very conservative and are members of the local community and are very focused on the longevity of those institutions. And so they talked about very sound fundamentals in terms of the match of their liabilities in terms of deposits and their assets in terms of either investments or loans. And so that's the general sentiment of the customer base, and there was no real difference between a community bank and a credit union in terms of the way that they talked about their business. I'll let Brian talk about the mix.
spk08: Yeah, and the mix of our live clients, we're still at 95% credit unions, roughly 5% banks. And that's really being driven from how we were founded, what our original strategy was 12 years ago, and how we've progressed as a company. But if you look more recently as we've made investments in our business banking platform, as we added ACH Alert to our platform, we're seeing a lot more traction on the bank side of the market. We have 42 clients in backlog today. of which roughly a third of those are banks. If you look at the new sales that took place during 2022 and then also now in the first quarter of 2023, last year, roughly a third of our new sales
spk06: were banks. Q1 of this year, you know, out of six clients, three were banks. And then when you look at our sales pipeline, over 35% of our sales pipeline is now revenue. So we feel like we're starting to make a lot of progress. We've made the appropriate level of commercial banking investments in the platform. And really now it's more about a share of voice in the banks out of the market, our marketing activities, and just creating more awareness. awareness that Alchemy is as strong on the bank side of the market with its platform in helping its clients as it is with credit unions. Perfect. Thank you. And a quick
spk11: Could you just kind of speak to your confidence in terms of your revenue guide in 23 and obviously the high degree of subscription revenue drives greater visibility, but just any kind of incremental comments in terms of your confidence in meeting or exceeding that target?
spk08: Thank you. Well, so we did raise our guidance for the full year, so that should speak in and of itself of our confidence in achieving you know, our revenue number for the year. I mean, in any given quarter, one quarter out, I have a very, very high degree of, you know, confidence that we're going to achieve that quarter. And even when we go further out, I mean, we have a full year of new logo implementations already scheduled. So of our 42 clients and backlog to implement, there are approximately... call it 32 to 34 clients, because you can always have one or two that shift out, that we'll implement in the back three quarters of the year. So we're going to implement 42 clients this year when we implemented 30 last year. So that's up 40%. The other area of visibility that we have is the fact that our clients are growing. Our clients are growing at a rate of about 10% to 12% their base each year with a market backdrop of 8% to 9% for the full market. So our clients tend to be the more technology-leaning in sector of the market, relying on their digital banking channel with a growth strategy. So that's another area that provides us confidence. And then our sales pipeline. Our sales pipeline is extremely healthy. As I mentioned, it includes a significant amount of banks in that. We have a very healthy sales pipeline for our cross-sell activity, our cross-sell motion. So we tend to perform very well against the guidance that we provide investors.
spk06: Thanks for taking the questions. Our next question comes from Charles Madden with Stevens. Please go ahead. Hi, good afternoon, and thank you for taking my question. With the business, shifting more towards add-on sales, I was wondering if you could comment on the incremental margin benefit from that mixed shift and the degree to which it might be driving the 200 to 300 basis points of gross margin expenditure. expansion or any efficiencies on the OpEx line? Yes, so the main advantage that we have of selling into our base is the implementation timeline. So we'll implement individual products much quicker than we complete a full digital banking conversion. So for credit unions and digital banking platforms, Conversion can be between 8 and 10 months.
spk08: For a bank, it's a little bit longer. But that's also highly dependent on the number of products that are taken on that initial order. But when you add one or two products through our cross-sell motion, Those products, on average, are implementing between three and four months. Some much faster than that, but the majority of them are kind of around that timeline. So it's kind of speed to market. It's a lower implementation lift, which means there's lower implementation costs involved. But more importantly, it's order to revenue much quicker.
spk00: Got it. And just as a quick follow-up, and I apologize if you mentioned this already, could you maybe comment on the ARPU, the initial ARPU from the 42 banks and credit unions you have in the pipeline, and if you're seeing more upfront consumption on your new go-lives?
spk08: Yeah, let me break that question into its components. So first on banks, On average, what we're seeing is a $30 revenue per user and above. That's pretty consistent in our pipeline. It's pretty consistent in what we've implemented over the last 12 months. What drives that is a couple of factors. The first factor is the take of our commercial banking product, which carries a pretty nice ARPU additive product for us. And then also, banks tend to have fewer users. So where you may lose ARR through a lower user base, you then bring in the commercial banking aspect of it, and then that drives up the RPU to kind of that $30 RPU level.
spk06: Got it. That's really helpful. Thank you for the call, Eric.
spk02: Our next question comes from Patrick Walravens with J&P Securities. Please go ahead.
spk03: Oh, great. Thank you. Congratulations. Terrific to see you defy the bearishness. So no one's asked the chat GPT question, right? Not yet, Pat. But go ahead, Pat.
spk06: The chat GPT question. That's more of it. So what are the implications, if anything, for you, Alex, in your business? What areas are you working? And then I don't think you have this issue, but it definitely creates an issue for some companies that price, for example, on a profit-based basis. for customer service reps where there's going to be less customer service reps. So is there any elements like that that we should be aware of? aware of in terms of how you price your solutions? No, you know, because we price based upon the seats of the digital users. So unless people get replaced by chat GPT and they stop putting seats in, you know, but
spk13: I'm being a little bit flip, Pat. Yeah, nice. There's not really a replace there. You know, obviously it's a fascinating technology. The thing that we focus on a lot because we're a trusted platform, right, and the way that you get things from the model is that you feed the model. And so we're not going to be in a position to feed the model a bunch of information that about the actual users of Alchemy because those are individual digital banking applications that have PII data in them. So based upon our pricing protocol, it's not like a situation where, let's say, you had a learning platform where you were subscribing to help for learning and you could get the same results from ChatGPT and you might stop paying for that learning platform. We're not in that situation.
spk02: Our next question comes from Josh Beck with KeyBank. Please go ahead.
spk09: Hi. Thanks for taking the question.
spk10: I wanted to also ask a macro question but a little bit of a different flavor since you obviously had such a meaningful touchpoint with so many of your customers in April. What was their general thought process around NIMS? Certainly credit tightening has come up quite a bit and maybe how some of those factors are feeding overall budgets and then maybe priority of of digital banking? Just kind of curious on how they're thinking about that.
spk13: Yeah. Well, let me first start with just their views on the stability of the business, right? And I want to go back to a data point that I shared. 0.91% of the users, so those are their customers or members,
spk12: 0.91% of the customers or members on the Alchemy platform have any uninsured deposits.
spk06: So if you think about that, out of, as Brian said, 15 million users are on the Alchemy platform across our customer base, less than 150,000 of those users have anything that's above a deposit limit. So what that created for our customers, at least what they told me that that created, is a lot of confidence in the space. stability of their business because their entire customer base and their entire deposits are under a deposit insurance limit and so they're just not having the conversations in terms of should I pull my Should I pull my department?
spk13: So everything starts from that base that there's a lot of stability. And then as I mentioned earlier, what they're going through right now, that many of them have been through, most of these CEOs have been in this business for 20, 25, 30 years. And so they've seen a dynamic environment before. And so what is changing for them is, okay, if I need to attract deposits instead of a year ago where I had too many deposits, how am I going to attract deposits? Well, I know what I've got to do to attract deposits is I've got to have better digital account opening capabilities. So talk to me about digital account opening. How are we going to implement that in our business? How are we going to do digital issuance of cards or issuing into a wallet? So in terms of attracting deposits, obviously they've got their own decisions they have to make on how much they want to pay for a deposit. But in terms of actually attracting them, they understand that they have to make investments in digital technology to attract them. And then when you turn around on the other side, the ones I talked to have very strong loan demand. But they also are developing different products that they want to promote to their base. And with those products that they want to promote to their base, they want to once again do that digitally. So they want to promote the product in the actual application itself, not sending somebody an email. And so they're very interested in how our data platform allows them to understand the key lifestyle indicators in their member base or their customer base. and allow them to create offers and promote those offers in the digital banking platform itself. And then to Brian's point earlier, turn around and measure whether or not those campaigns are effective, whether actual returns on those on those campaigns. So that tends to be the conversation that I'm having with those CEOs. And even the, I told you, I had, you know, 400 people show up for our conference and many of those were CEOs, but they're all talking about their business as well. And so really what they're doing in summary is they got a really dynamic environment. They're trying to manage their net interest margin in that dynamic environment and
spk06: And they're doing that by attracting deposits. They don't have to do that digitally. And they're also Coming up new products and services that they want to promote digitally. So it's all together. I mean, that's what makes me feel good about the business. business because those are all things we can help them with. Very helpful. Obviously, it sounds very resilience in terms of the demand for the platform for a lot of reasons. Maybe more of a financial question for Brian.
spk09: I think you mentioned
spk06: segment it was high single-digit RPU growth and I believe we're lapping that that acquisition and so is that a good baseline to think about you know could
spk10: to potentially be higher than that when you think of some of the implementation and bank mix factors? Just help us at least maybe think through that a little bit.
spk08: Yeah, so the first quarter, it was 8% is the organic ARPU expansion. And in Q4, it was 7%. So it's a slight tick up from Q4 of 2022. When we step back and we think about our longer-term revenue model, where we typically landed is on user growth of about 20% and RPU expansion around 5%. But in any one quarter, those dynamics can change somewhat between one and the other. I feel that overperformance... for us or where there's an overperformance opportunity, it'll likely come through ARPU expansion as our client sales and add-on sales go-to-market motion continues to accelerate. In Q1 of this year, it was 50% of total sales. For the full year of last year, it was 34%. So as we're gaining more success and cross-selling into our base, it'll provide us a revenue growth advantage because of the speed in which those orders convert to revenue, as well as our expansion opportunities.
spk06: Really helpful. Thanks, Brian. Our next question comes from Andrew Smith with Citi.
spk12: Please go ahead.
spk06: Hey, Alex. Hey, Brian.
spk14: Good quarter. Thanks for taking my questions here. I wanted to drill down on just user growth. Any deviations that you saw shortly after the banking turmoil or into the second quarter that you've seen? Obviously, I don't think these things turn in a dime, but just curious if there's any call-outs from a user growth perspective. Thanks, guys.
spk13: Yeah, no. No.
spk06: As I said earlier, when you kind of look at the statistics we pull out of our system, there was no abnormal movement in user growth between the middle of March and today. No. In addition to that, Andrew, our existing clients grew again in the low double digits year on year. And sequentially, we actually added just under 300,000 digital users from growth within our base, which, as you're aware, is typically how we think about the business. is 100,000 digital user growth per month throughout the year. Pretty much landed right in the middle of a fairway. What we always expected. Got it. Thank you for that. I appreciate that. And I apologize that this was discussed. I joined a little bit late.
spk14: It sounds like demand sales cycles continue to be consistent, pretty robust, but any observations? According to date, does momentum continue from a conversion perspective? Just curious on the trend line there in terms of more recent trends, if you could share anything.
spk13: Yeah, as I mentioned, my opening comments, you know, connected to both the CEO sentiment and the data from our systems. So far, we've continued to see our sales pipeline grow pretty consistently. That's in both new logo and and in add-on sales. And, you know, if anything, we've seen the mix of the new logo pipeline, you know, move from maybe a third banks, two-thirds credit unions, to getting closer to a 50-50 mix between banks and credit unions. So we've seen growth in add-on sales from a pipeline perspective. We've seen fairly consistent growth for new logos, and we've seen it a good mix between banks and credit unions.
spk08: And what I'd also add, Andrew, is we're not hearing from our sales force that the sales cycle is extending or there's unexplainable delays in the sales cycle or a shift in investments. perspectives of the end market. In fact, what we're finding is strong needs for innovation in our existing base. We're also seeing that as the take rate of products is increasing in each year's cohort over the last couple of years, and that's continuing into 2023. I mean, it's early. We have one quarter that we put up. And in that one quarter, new sales were up over 40% of Q1 of last year. Right now, the visibility we have into our sales pipeline and how that can translate into actual orders and closed business, it looks like we'll have another good quarter in Q2, but now we're predicting the future versus, you know,
spk06: talking about what actually printed. But, you know, we have confidence that we're going to go out and execute. We've executed all of 21,
spk09: We've executed the first quarter of 2023. And there's no reason, we don't see a reason that is for that execution to change.
spk06: Makes sense. I appreciate that. That's very constructive. Just one last question is on product. The business banking platform, maybe you can comment on that. Just the demand you've seen for that. It seems like that's pretty key part of kind of penetrating the bank market. I'm just curious, I guess, kind of the demand and uptake you've seen just both in terms of side clients and then also in the pipeline. Thanks a lot.
spk13: There's actually an extra benefit that's occurred for us on the business banking product. So for sure, the business banking product allows us to be competitive in the bank market. When you think about the bank market, what it really is is the bank market where the bank is targeting commercial accounts as their target market. So as an example, we signed a bank in the first quarter, and I talked to that CEO, and their target market is family-owned businesses. And we've kind of rethought. There's a hard thing that happens for a small and medium business where they actually have to manage all of the user's in their bank account from a governance perspective. And we've rethought that and built something that is more intuitive for small and medium businesses to use than what's on the market. And that CEO told me that one of the reasons why they were selecting Alchemy is what we showed them from, it's called sub-user management, we showed them from a sub-user management perspective he felt like was going to be easier for his organization to use, and more importantly, easier for his customers to use. So clearly the product was important to us to be able to be competitive in the bank market, but the dividend that it's paying is that now, as credit unions are looking to attract deposits, every credit union CEO that I meet with has already as part of their topic, whether or not they're going to do this as a strategy, but it has as part of their topic, hey, we're considering increasing our investment in business banking because that is a good source of stable deposits, and can you talk to me about what you do from a business banking perspective? So in summary, it's helping us be competitive in the bank market, but it's also helping us because of the desire that credit unions have
spk06: attract new deposits and they see small and medium businesses as a good source of new deposits and then that's a fairly easy add-on for them since they already have the Alchemy platform.
spk09: And Andrew, just to
spk06: provide some more of a quantitative explanation. If you look at our new logo cohort in 2020, to just over 40% took business banking on their initial order when banks were about a third or so of the portfolio so that kind of speaks to what Alex was just describing and then you look at Q1 60% of the new logos that we signed to business banking. So it is an area where we've invested in the platform. We've improved the functionality.
spk08: We feel like it's more than game time ready, and it's more about share of voice and marketing and communication around where Alchemy's at on that side of the market.
spk06: Very helpful. Thank you, guys.
spk02: Our next question comes from Salkit Kalia with Barclays. Please go ahead.
spk04: Okay. Hey, good afternoon, guys. Thanks a lot for taking my questions and squeezing me in here. Maybe, Brian, I'll start with you. A lot of focus just on the, and frankly, the number showing, right, the resilience in the business. I had a little bit of a question for you just on backlog. I think you said we have about 42 clients in backlog. I might have missed how many users we have in that backlog, but maybe the question is, are those clients that are going to be implemented Are those timelines sort of set in stone? I guess, is there any chance that those implementations could delay, just as we sort of think about how the user base here grows in 2023? Does that make sense?
spk08: No, it does. So 1.4 million users. So those 42 financial institutions represent 1.4 million digital users. And the implementation date is scheduled. So there's a date that we're trying to land to have the financial institution live on our platform. That's primarily driven by the contractual end date of their current provider. Things can happen during implementation outside of our control. Sometimes it's related to some of the systems that you're integrating with. It could be the core provider. It could be even other systems. that can shift out an implementation date a couple of weeks. Sometimes they accelerate a couple of weeks. But in large part, we generally land the implementation date within a couple of weeks of what the original expectation is. There can be some extraordinary circumstances sometimes where that is not the case. But generally, when it's items that are in our control, we're sticking that original schedule date.
spk06: As Brian said, the schedule date is not a date of convenience for the customer. The schedule date is always backed up to they're getting off of another system. So both the customer and the alchemy have an incentive to drive towards the schedule date. That's a great point. That's a great point. Alex, maybe for you if I can squeeze a follow-up in. You know, just talking a little bit about, you know, the credit union versus banking. You know, composition earlier. I was wondering if you could just, just zooming out, could you just talk about the difference in backdrop or defensiveness, right, from a macro perspective for credit unions?
spk04: versus banks in terms of their willingness to spend and invest in this backdrop?
spk13: I would say generally, you know, if you think about a business banking product, the bank is charging their customers to use that, right? And so there's a willingness for a bank to invest in a business banking product because that's a, like, things like an ACH Alert and our business banking product, our revenue generating products for those institutions. So there is a willingness there. And I would say generally a credit union has been more focused on the member experience itself and delivering a great service to the member. So that's a very generalized comment. However, In my individual conversations with the institutions, and specifically with the credit unions, since that was your question, the credit unions will invest in our products for one of three reasons. There are absolutely, I was with a Credit Union just two weeks ago, $2.4 billion growing with a lot of growth strategy, and they are a loan-forward credit union. So their strategy is to produce loans and produce revenue through those loans. And so you'll have some credit unions that are very much revenue-forward credit unions. They don't mind talking about selling products. You have others that see this as a service channel and think about costs that they take out of the service channel. And then you see other credit unions that are just very focused on the member experience itself. I was talking with one CEO and we were talking about the digital marketing capabilities. And she said, I wouldn't even call this digital marketing. For us... This is an investment in member personalization, and that's what we've always been about. That's always been our DNA, and so we're going to invest in it because we're investing in member personalization.
spk06: So it probably gave you more than you wanted, but there's a pretty wide range of reasons why Why do people invest? Got it. No, I'll take it. Thanks a bunch, guys. I appreciate the time. This concludes our question and answer session. And our conference is also now concluded. Thank you for attending today's
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