Alkami Technology Q4 2024 Earnings Call Transcript

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February 27, 2025
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Operator

Good afternoon, ladies and gentlemen, and welcome to the Alchemy Technology Fourth Quarter twenty twenty four Financial Results Conference Call. At this time, all lines are in listen only mode. This call is being recorded on Thursday, 02/27/2025. I'd like to turn the conference over to Steve Calk, Vice President of Investor Relations. Steve, please go ahead.

Steve Calk
Head - Investor Relations at Alkami

Thank you, Alan. With me on today's call are Alex Schuteman, 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.

Steve Calk
Head - Investor Relations at Alkami

For a summary of risk factors associated with our forward looking statements, please refer to today's press release in the section in our latest 10 K. Statements made during the call are being made as of today, and we undertake no obligation to update or revise these 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 the comparable GAAP financial measures can be found in our earnings press release and in our filings with the SEC.

Steve Calk
Head - Investor Relations at Alkami

Now I'll turn the call over to Alex.

Alex Shootman
CEO at Alkami

Thank you, Steve. Good afternoon and thank you all for joining us. I'm pleased to report another great quarter of financial results for Alchemy, which contributed to an outstanding full year performance. During the fourth quarter of twenty twenty four, Alchemy grew revenue 26% and generated over $10,000,000 in adjusted EBITDA. In addition, we ended the quarter with 20,000,000 users on the Alchemy platform and that is up 2,500,000 users compared to the prior year.

Alex Shootman
CEO at Alkami

For the full year of 2024, we delivered revenue growth of 26%, adjusted EBITDA margin expansion of 900 basis points and improved operating cash flow by over $36,000,000 We are proud of these results as our execution continues to track the multi year revenue and profit targets Brian and I provided at the beginning of twenty twenty three. I'd like to make a few comments on the quarter and the year and then I'll discuss our plans to acquire Mantel. In our fourth quarter twenty twenty one earnings call, we outlined a five point plan to drive our desired long term business outcomes. First, we would succeed in the bank market as we had in the credit union market. Second, we would leverage add on sales to drive growth.

Alex Shootman
CEO at Alkami

Third, we would invest in our platform for efficiency and differentiation. Fourth, we would become a destination company for talent. And fifth, acquisitions would be part of our growth equation. Alchemy's current business results are an outcome of excellent progress on these five business objectives. At the end of twenty twenty four, we had 42 banks under contract, including 23 live on the Alchemy platform and 19 in our backlog.

Alex Shootman
CEO at Alkami

This compares to eight banks on our platform at the end of twenty twenty one. We remain focused on the credit union market as we were investing in the bank market. And in 2024, we became the number one digital banking provider in the credit union market in terms of mobile users. As a reminder, our longer term goal is to generate half our new logo wins in the bank market and half in the credit union market. Since 2021, we have almost doubled the participation of add on sales to Alchemy's new bookings.

Alex Shootman
CEO at Alkami

In 2024, add on sales represented 45% of new bookings at Alchemy compared to 24% in 2021. Our client sales team has been a key part of increasing our revenue per user by 30% since the end of twenty twenty one and they have more than tripled our annual renewal count over that period with 42 in 2024 versus 12 in 2021. Within Alchemy within the Alchemy platform, our investments have improved quality, resiliency and scalability. We migrated over 90% of our platform's microservice traffic to Kubernetes and enabled auto scaling capabilities. Our availability has increased to 99.99% for 2024 and we believe we are the only provider that includes maintenance windows in our availability calculations.

Alex Shootman
CEO at Alkami

Our hosting cost per user has improved by 26% from our quarterly high watermark over the last three years and platform investments have improved the efficiency of implementations. Hosting cost and implementation efficiency have been prime drivers of an improvement in gross margin of almost 600 basis points since 2021. On the talent front, we've increased our retention rate 10% to 85% since 2021. Our employee engagement scores are 82% favorable. And in 2024, the awards Alchemy One include best culture, best sales team, best product team, best HR team, best engineering team, best leadership team and best places to work in FinTech.

Alex Shootman
CEO at Alkami

This leads me to the final business objective we discussed, which is to grow through acquisitions that fit into the strategy and business model of Alchemy. We are excited to add Mantle's people, products and clients to Alchemy. Nathaniel, Ben and the rest of the Mantel team have built a great company that solves a really hard problem, which is critical to our market. And most importantly, they've done it with a great culture and a commitment to the customer. Mantle offers the premier SaaS solution for onboarding and account opening and serves as the front door for deposit originations for both consumer and business accounts in a wide variety of financial institutions.

Alex Shootman
CEO at Alkami

Over the last couple of years, we've heard from our clients and the broader market about the increasing strategic need to improve the way they open accounts for new customers and add products for existing customers. For example, Alchemy fielded a study in October 2024 in which we asked regional and community financial institutions what their top investment priority will be in 2025. Out of 12 possible choices, the top ranked investment priority was technology to improve the customer or member experience, including an account opening platform. This option was number one among credit union respondents and number two among banks. The need to improve the account opening experience has become critical for community banks and credit unions in a world that expects an elegant digital offering.

Alex Shootman
CEO at Alkami

These financial institutions are under intense competitive pressure from mega banks and fintechs who have invested heavily to create better digital technology. When these dynamics are considered with predictions of the upcoming greatest wealth transfer in history, every client executive I meet is prioritizing the creation of an improved onboarding experience across all their channels. Mantle is unique and that it offers a multi tenant or agnostic single platform that enables financial institutions to support all channels in onboarding deposit accounts, including digital, in branch, call center and relationship managers. It addresses the needs of both consumers and businesses and it automates the onboarding process for virtually all deposit account teams. Lantl is proven technology as they have 145 clients under contract including 112 financial institutions in production ranging in size from $80,000,000 to over $20,000,000,000 in assets.

Alex Shootman
CEO at Alkami

Of these approximately 70% are banks. Mantle's bank penetration and the minimal overlap between Mantle and Alchemy's client base creates a great cross sell opportunity for both Alchemy and Mantle. With this acquisition, Alchemy solidifies its position as the premier digital and sales and service platform in the industry. After the Mantle transaction closes, Alchemy will have the three market leading required technologies for a bank or credit union to onboard, engage and grow their account base in a secure environment. These three technologies are onboarding and account opening, digital banking and data and analytics.

Alex Shootman
CEO at Alkami

For onboarding, Manta will create a single onboarding and account opening solution that works across all channels for all customer types for the majority of deposit products. This offering is already proven to boost deposit growth with a higher converting application, higher initial funding and less fraud than competitive alternatives. For engagement, Alchemy's digital banking solution was awarded Best Banking App by Taresheet in 2024. It is the fastest growing digital banking platform among all U. S.

Alex Shootman
CEO at Alkami

Financial institutions and it serves over 20,000,000 users with a single code base and a multi tenant environment. For growth, Alchemy's data and marketing solution is built for financial institutions and provides 50,000 descriptive data tags and a dozen AI predictive models trained on analyzing more than 18,000,000,000 core transactions, which improves personalized targeting and cross selling to increase revenue and reduce churn. But when these solutions are used in an integrated manner, the Alchemy digital sales and service platform will create more client value, enabling Alchemy's clients to have a competitive advantage in their market. Alchemy will become the ultimate land and expand solution for banks and credit unions. Let me give you three examples.

Alex Shootman
CEO at Alkami

First, driving retail to business expansion. Using Alchemy data and marketing, a financial institution could promote a business deposit account to a retail account holder with a history of business transactions, onboard the new deposit account in minutes using Mantle and guide the account holder on new features and functionality in Alchemy Digital Banking. Next, improving account opening conversion. A financial institution could identify customers or members who have abandoned the account opening experience in Mantle, use Alchemy's data and marketing to run targeted marketing campaigns to encourage conversion and guide the customer on features and functionalities in the Alchemy digital banking platform. And finally, increasing accounts and digital users, Either through auto registration by Mantle and to Alchemy Digital Banking or by leveraging Alchemy data and marketing to target new customers that have not registered, the addition of an onboarding and account opening system will create a flywheel effect for digital bank for increasing digital banking users and number of accounts per household, which is a benefit both for Alchemy and our clients.

Alex Shootman
CEO at Alkami

We believe this acquisition unlocks portions of our TAM by increasing our competitive advantage. Complementing our digital sales and service platform with an industry leading onboarding and account opening experience will drive growth in new digital banking client wins. In addition, we're excited to place the Manta product suite into the hands of our client sales team who have demonstrated success in growing Alchemy client relationships and cross selling products from our segment and ACH Alert acquisitions. In closing, I'm proud of our results from 2024. I'm excited about the momentum we take into 2025 and I'm eager to close the Mantle transaction and bring these new capabilities to our market with an intent for Alchemy to be the number one digital banking platform.

Alex Shootman
CEO at Alkami

Thank you to our employees, clients and investors for continuing to say yes to Alchemy. We take your trust personally and we will continue to execute on our commitments. I'll now hand the call to Brian.

Bryan Hill
CFO at Alkami

Thanks, Alex, and good afternoon, everyone. In 2024, we continue to drive industry leading revenue growth and outperform on our profitability goals. For the year, we achieved total revenue of $333,800,000 representing year over year growth of 26% and improved adjusted EBITDA to $26,900,000 compared to a loss of $1,600,000 in 2023. Subscription revenue grew 26.5% in 2024 and represented almost 96% of total revenue. Our fourth quarter results were a strong finish to the year and we are entering 2025 with good momentum.

Bryan Hill
CFO at Alkami

For the fourth quarter of twenty twenty four, we achieved revenue of $89,700,000 representing growth of 26%. Subscription revenue grew 25% and represented 96% of total revenue. We increased ARR by 22% and exited the quarter at $356,000,000 We currently have approximately $56,500,000 of ARR and backlog for implementation, the majority of which will occur over the next twelve months. Included in our backlog are 39 new clients representing 1,300,000 digital users. We exited the quarter with two seventy two clients and 20,000,000 registered users on our digital banking platform representing registered user growth of approximately 2,500,000 or 14% compared to last year.

Bryan Hill
CFO at Alkami

Over the last twelve months, we implemented 38 financial institutions supporting 1,200,000 digital users. In addition, our existing clients increased their digital user adoption by 1,300,000 users. As a reminder, because of the long term nature of our contracts, we have three to four quarters of visibility into upcoming client attrition. During 2024, we churned less than 1% of our digital banking ARR. Over the long term, we model digital banking ARR churn at 2% to 3% per year, but expect to do much better in 2025.

Bryan Hill
CFO at Alkami

Currently, we expect to churn four clients in 2025, representing 175,000 users and less than 1% of ARR. We ended the quarter with an RPU of $17.81 up 7% compared to a year ago driven by add on sale success and the addition of new clients who tend to onboard with a higher average RPU. For example, new digital banking clients implemented for the fourth quarter with an RPU of $23.55 reflecting greater product adoption when compared to our installed base. We are seeing broad based demand across our product portfolio. For the year, we signed 35 new digital banking platform clients including 15 banks and our add on sales effort represented approximately 45% of twenty twenty four new sales.

Bryan Hill
CFO at Alkami

In addition to add on sales, our client sales team is responsible for client contract renewals. We renewed 42 client relationships in 2024. Added together with 35 new logo wins, this represents 77 competitive wins for the year compared to 70 in 2023. In total, our 2024 renewal cohort increased ARR run rate 12% at the time of renewal, once again outperforming prior year cohorts as financial institutions are keeping their functionality competitive with their industry competition. In 2025, we expect approximately 25 renewals, slightly below our recent average as we pull forward several renewals into 2024.

Bryan Hill
CFO at Alkami

And finally, our remaining performance obligation was just under $1,400,000,000 representing 3.8 times our ARR and up 20% compared to a year ago. Now turning to gross margin. For the fourth quarter of twenty twenty four, we delivered non GAAP gross margin of 63.1% representing nearly two eighty basis points of expansion compared to the prior year. We achieved gross margin expansion through continued improvement in our hosting costs and platform investments, as well as operating leverage across our post sale operations. As a reminder, our 2026 gross margin objective is 65%.

Bryan Hill
CFO at Alkami

Moving to operating expenses. For the fourth quarter of twenty twenty four, non GAAP operating expenses of $46,800,000 or 52% of revenue represented year over year operating leverage of approximately 500 basis points. We derived operating leverage across each operating expense category, but primarily in G and A where we continue to realize operational scale. In addition, we continue to achieve a high level of sales team productivity and go to market efficiency. For the last twelve months, we increased our ARR 64,800,000 while investing $50,700,000 in non GAAP sales and marketing representing an efficiency ratio of 1.3:one.

Bryan Hill
CFO at Alkami

We believe this ranks Alchemy among the best in SaaS in terms of sales and marketing efficiency. Our adjusted EBITDA in the fourth quarter was 10,200,000 better than the high end of our expectations. Our adjusted EBITDA margin for the quarter was 11.3% and when combined with our revenue growth rate results in achieving rule of 37. We have started to invest in our captive offshore capability and as we discussed last quarter, we expect an investment of approximately $5,000,000 in 2025. We are still planning to complete the transition from our current vendor during 2026 and we do not anticipate any impact on our 2026 financial targets, although we do expect to see a positive impact on margins beyond 2026.

Bryan Hill
CFO at Alkami

Related to our balance sheet, we ended the quarter with just under $116,000,000 of cash and marketable securities. In 2024, we produced operating cash flow of $18,600,000 an improvement of $36,100,000 compared to 2023. We've also just announced an amendment to our credit facility which expands our revolver from $125,000,000 to $225,000,000 and extends the maturity date to February. Before turning to guidance, let me provide some additional commentary on the Mantle acquisition. This is a very attractive transaction that will position us as a clear leader in digital banking with a powerful platform to help financial institutions onboard, engage and grow their customer relationships.

Bryan Hill
CFO at Alkami

There will be no one like us among digital banking providers and similar to our acquisitions of ACH Alerts segment, we believe Mantle will help differentiate our platform, drive further success in digital banking client wins and contribute to our current success cross selling products into our digital banking installed base. As discussed in today's press release, we've agreed to acquire Mantle for an enterprise value of $400,000,000 on a debt free cash free basis and subject to customer purchase price adjustments, which we expect to be approximately $7,000,000 We plan to issue restricted stock units to Mantle employees with an estimated value of $13,000,000 at transaction closing and replacement or unvested compensatory stock options. The resulting purchase price of $380,000,000 is expected to be funded with cash. We have multiple options to fund the $380,000,000 cash purchase price. Our options include balance sheet liquidity, revolver capacity and a universal shelf that can be used for equity, equity linked or debt financing.

Bryan Hill
CFO at Alkami

We're evaluating these options as we approach closing. Closing is expected to occur before the beginning of the second quarter and is subject to customary provisions including HSR approval. The purchase price represents less than seven times projected ARR under contract at the end of twenty twenty five. We believe the acquisition has an IRR above 30% before considering revenue synergies expected to start during 2026. Now turning to guidance.

Bryan Hill
CFO at Alkami

For the first quarter of twenty twenty five, we are providing guidance for revenue in the range of $93,500,000 to $95,000,000 which represents total revenue growth of 23% to 25%. For adjusted EBITDA, we are providing first quarter guidance in the range of $9,500,000 to $10,500,000 For full year 2025, we are providing guidance for revenue in the range of $440,000,000 dollars to $445,000,000 representing total revenue growth of 32% to 33%. We are also just providing adjusted EBITDA guidance of $47,000,000 to $51,000,000 dollars Assuming an acquisition close date of March 31, full year guidance includes revenue contribution of approximately $30,000,000 and an adjusted EBITDA loss of $5,000,000 from the Mantel acquisition. We believe the Mantle business will be accretive to adjusted EBITDA starting in 2026. We expect Mantle's ARR under contract at 12/31/2025 to be approximately $60,000,000 representing a growth rate above 30% when compared to the same metric at the end of twenty twenty four.

Bryan Hill
CFO at Alkami

In closing, I'm very pleased with our 2024 financial performance. Our team delivered best in class growth, continued operating leverage and superior go to market efficiency. We continue to perform among the best SaaS companies. And now with the leading omni channel account opening solution in Mantle, we believe an unequivocal category leader in an industry that already enjoys strong tailwinds and many years of innovation ahead. With that, I'll hand the call to the operator to take your questions.

Operator

Thank Your first question comes from Andrew Schmidt of Citi. Your line is already open.

David Wieloszynski
David Wieloszynski
Equity Research Senior Associate at Citi

Hi. This is David Wilazynski on for Andrew Schmidt. Thank you for taking my questions. How does Mantel compare with your existing account opening solutions? And I was wondering if you could give more details on the potential impact of the cross sell opportunity there?

Alex Shootman
CEO at Alkami

Thank you for the question. The current account opening offering that we have is digital only for just one or two deposit types. And as we got into that market and listen to what our customers were trying to do, they really needed to be able to have an account opening solution that could operate in digital, could operate in call centers, in branch. And even if you think about commercial banking with a relationship manager and they needed to have the ability to support a whole lot more different types of products and specialty account structures, retirement accounts, health savings accounts, trust accounts, escrow accounts, lots of different types of account roles, whether it would be beneficiary, custodian, guardian, and none of those were things that we were offering with our current product. And then I would say, because of what I would call more of a normalization of interest rates, we all went through about fifteen to twenty years of almost zero interest rates.

Alex Shootman
CEO at Alkami

And now that interest rates are what you might consider a little bit more normal, the ability to attract deposits as well as make loans has become critical to the financial institutions. So in summary, our current product did a few things, did a few things well, but it did not meet all of the needs of the market, and that's what the mantle product does.

David Wieloszynski
David Wieloszynski
Equity Research Senior Associate at Citi

Thank you for that. And then what is embedded in the 2025 outlook between new user growth and ARPU expansion? And could there be more of a skew towards user growth assuming a pickup in M and A activity?

Bryan Hill
CFO at Alkami

Yes. The guidance that we've provided for 2025, I mean, it's in line with what we have been providing on more of our longer term guidance and very consistent with 2024. So user growth, organic user growth, so excluding the Mantle acquisition, we would expect user growth in that 14% to 15% range, which is very consistent with 2024. Our ARPU expansion will be in a 6% to 8% range, again very consistent with 2024. What we haven't yet determined yet and we will before once we close the Mantle acquisition and once we move into providing more combined guidance on a go forward basis is consideration of the Mantle client base, the incremental users that will come with the Mantle client base and the RPU.

Bryan Hill
CFO at Alkami

And so let me give you a couple of examples. Mantle today has 112 clients under contract and those clients carry an average RPU between $5 and $6 So it's a nice RPU add, but they're going to bring about 8,000,000 digital users to Alchemy. And there's very little overlap as Alex commented on in his prepared comments between the two client bases. So they're very complimentary in nature. The Mantle client base is 70% banks and 30% credit unions.

Bryan Hill
CFO at Alkami

The Alchemy client base is 90% credit unions and 10% banks at the moment. So, not nice complementary to each to one another, but with very little overlap. So what you'll ultimately find is our user count will jump to $28,000,000 20 9 million dollars but you're adding those users at a $5 to $6 RPU.

David Wieloszynski
David Wieloszynski
Equity Research Senior Associate at Citi

Very clear. Thank you.

Operator

Your next question comes from Saket Kalia of Barclays. Your line is already open.

Ryan Powderly-Gross
Ryan Powderly-Gross
VP - Equity Research at Barclays

Hey, team. This is Ryan Pagli on for Saket tonight. Thanks for taking the question. And maybe just to start on the Mantle deal, certainly interesting. I'm curious what you see in terms of the competitive environment in this type of market.

Ryan Powderly-Gross
Ryan Powderly-Gross
VP - Equity Research at Barclays

Is it similar to your core digital banking space where it's a lot of the core providers that you might be running up against or will there be other competitors that you might expect to go more head to head with this type of acquisition?

Alex Shootman
CEO at Alkami

There's really when we talk with our clients, there's really three alternatives that they pursue in trying to deliver this type of capability to their customers or their members. One is they've got a very outdated capability from a core provider. The second is there are some smaller players that are in the market that they look at and many of them also tried to write some of their own software to try to stitch together the experience. What we liked about Mantle is that with a what a Mantle customer experiences and this is the design of their product, the way that they've thought about the user experience across the end to end process and the fact that they're core agnostic and they've built technology that allows them to integrate very well with over 20 different core systems. So a median retail account opening experience within Mantle is five minutes compared with fifteen minutes in the industry and a median business account opening experience in Mantle is eight minutes compared with three point five hours in the industry and eighty five percent of the applications receive an automated decision.

Alex Shootman
CEO at Alkami

So that's what we were looking at when we got excited about Mantle is yes, there's some other small players, yes, there's some legacy core technology, yes, there's customers that have tried to write their own, but the outcomes that the Mantle technology delivers is far superior to anything else that was on the market.

Ryan Powderly-Gross
Ryan Powderly-Gross
VP - Equity Research at Barclays

That's super helpful. Brian, maybe a follow-up for you. I think in the press release you mentioned that while there's an EBITDA loss for Mantle this year, you expect it to be EBITDA accretive in fiscal twenty twenty six. Just wondering, are you including any expense synergies from this deal at all? Or is that just purely driven by sort of revenue synergies and cross sell that sort of thing?

Ryan Powderly-Gross
Ryan Powderly-Gross
VP - Equity Research at Barclays

Thanks.

Bryan Hill
CFO at Alkami

So as it relates to revenue synergies, we're really expecting those to occur or be more evident in 2026 and primarily in the back half of 2026. And as I mentioned in the previous question from Dave at Citi, the client bases are very complementary to one another. So there is going to be a nice opportunity for revenue synergy. As it relates to expense synergies, the mantle scaling the mantle operation, they'll be able to leverage things such as G and A within Alchemy. At some point, we'll be able to leverage the global capability center that we're developing in 2025 in India.

Bryan Hill
CFO at Alkami

So it's more about helping Mantle scale more efficiently than it is having cost cutting synergies on day one. Because keep in mind, Mantle is a fast growing business. We do not want to do anything to upset the growth trajectory that they're currently experiencing. We're here to identify synergies from a go to market perspective and even drive further revenue growth.

Ryan Powderly-Gross
Ryan Powderly-Gross
VP - Equity Research at Barclays

Very helpful. Thanks guys.

Operator

Your next question comes from Patrick Walravens of Citibank. Your line is already open.

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

Great. Thank you. Citizens,

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

congratulations you guys. Alex, I would love to hear sort

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

of the background to the deal.

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

When did you first meet them? How did

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

the process unfold? And how did we get to this transaction?

Alex Shootman
CEO at Alkami

Well, the two companies have known about each other since 2019. So we've known them and they've known us and we've stayed in relationship for quite a while. And I would characterize this as a deal that evolved through understanding each other's culture, understanding the people that were running their company and the quality of people that were running their company and also listening to our customers. Pat, last year, we had our Customer Advisory Board together in June at a customer location outside of Denver, Colorado. And we treat that Customer Advisory Board very strategically.

Alex Shootman
CEO at Alkami

We meet with them not about features and functions, but they help us guide the long term future of the company. And we were reviewing several different options that Alchemy could invest in, fraud detection, continued investment in our data platform and several other areas. And at the end, they kind of huddled and came back to us and said, there's something that's a bigger issue than us. We've all got these legacy systems. We've got different underwriting platforms, things like that.

Alex Shootman
CEO at Alkami

But what we really need is we need a great end to end onboarding experience for our members to both attract members so we can get deposits and then also cross sell other products to our customers or our members. So Elkami, what we really need you to do is deliver to us that great end to end experience. So Pat, we've known each other for a long time. We've respected each other for a long time. The market need was really speaking to us wanting to do something in this space.

Alex Shootman
CEO at Alkami

And then as I said, we've just spent a lot of time getting to know each other, getting to know their management team. One of the things we really cherish is the ability for our culture to treat our customers as the North Star. And that was evident within all the investigation that we did with Mantle. So Pat, probably more than you want to know, but I would characterize this as we've known each other for a long time. We knew there was a strategic need in the market and we got to know each other for a period of many months to make sure that this was the right thing to do.

Bryan Hill
CFO at Alkami

And Pat, I'll add a couple more comments to this. I mean, strategically, I mean, taking what we view as the absolute best asset in the space, the most disruptive, elegant, digital experience as it relates to onboarding, pairing that with similar accolades as it relates to the digital banking platform. And then finally combining that with what we view as the best marketing data analytics solution. I mean that creates a network effect, a flywheel effect in the revenue of all of those offerings that we believe is very powerful. And then when it's just a front end to back end digital offering that I just described.

Bryan Hill
CFO at Alkami

And so we've been watching Mantle for, offering that I just described. And so we've been watching Mantle for a long time. And Mantle, it's always when is the right time to do an acquisition of this type and Mantle was at a point to where raising capital would be an alternative or potentially finding a strategic partner. And for all the reasons that Alex just described, finding a home at Alchemy really was the best decision that they felt that they could come to. And so after years of talking to them and staying close to them, it all manifested late twenty twenty four.

Bryan Hill
CFO at Alkami

And here we are today and we're announcing what we're extremely excited about, which is the future of Alchemy and really the very early beginnings of building a $1,000,000,000 revenue company over the next four to five years.

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

All right. That's super helpful. Thank you both.

Operator

Your next question comes from Chris Kennedy of William Blair. Your line is already open.

Cristopher Kennedy
Research Analyst - Financial Services & Technology at William Blair

Good afternoon and thanks for all of the details. Just wanted to focus a little bit, it seems like Mantle has a really good presence within banks and doing kind of business banking activities. Just talk about kind of how that dynamic played into the acquisition?

Alex Shootman
CEO at Alkami

It played in a couple of different ways. As you know, we're focused on the bank market and being able to pair a onboarding and account opening platform that serves both consumer and business and all sorts of business types, right, whether it's sole proprietorship, general partnerships, non profits, trust to states. So that capability was really interesting to us in terms of Alchemy's long term strategic direction where we've been investing in the bank market. But the other thing that's been really interesting is probably 45% of the credit unions that I meet with have a commercial strategy. And so this also fits into us being able to bring Mantle into the credit union installed base for ALKME, not just because they've got a good consumer product, but because they've got a good business product as well.

Alex Shootman
CEO at Alkami

So it's really kind of both of those things. One, it matches our strategy of investing in the bank market. But number two, as Brian said, there's virtually no overlap between the two companies from a customer base. I think it's probably less than 10 accounts. And because of some of the transformation that's happening in the credit union market, the coverage that Mantle has for both consumer and business was really attractive as we think about the potential for cross sell in the future.

Cristopher Kennedy
Research Analyst - Financial Services & Technology at William Blair

Great. Thank you for that. And then I guess just another quick one on Mantel. I know the question was asked earlier, but the prospects for EBITDA to go from a negative to a positive, can you just double click on that again? Thank you.

Bryan Hill
CFO at Alkami

Yes, Chris, that's primarily driven by just revenue scale. I mean, Mantle exiting 2025 with $60,000,000 of revenue under contract and that's growing north of 30%. So, there's still relatively a small business that's becoming a larger business with a very fast growth trajectory and it's Alchemy relying leaning on Alchemy and Alchemy's go to market, Alchemy's R and D, Alchemy's G and A, those areas to drive future profitability scale for Mantle. So it's really the two companies working together and Alchemy being able or rather Mantle being able to lean on Alchemy for those areas within its business to help us scale.

Alex Shootman
CEO at Alkami

I mean, one of the things that many of the analysts at both Brian and I have met with for many quarters have asked us about acquisitions. And we said, when we do an acquisition, it will be strategic and it will also fit into the Alchemy business model. And so the thing that we do like about Mantle, Mantle is a growth company. So this is not a situation where as Brian said earlier, we want to cut a lot of expense to figure out, fit them into some model. This is a situation where there are well run company that can leverage some things within Alchemy.

Alex Shootman
CEO at Alkami

So that as Brian mentioned in 2026, we see this as accretive to our business.

Cristopher Kennedy
Research Analyst - Financial Services & Technology at William Blair

Understood. Thanks a lot.

Bryan Hill
CFO at Alkami

Yes. But Chris, as you look out over a multi year period, think about you should think about Mantle being a couple of points of incremental organic growth. You should think about Mantle being accretive to gross margin and Mantle will be a drag of one to two points on EBITDA margin for the next two to three years and then reaching and conforming to an Alchemy EBITDA margin profile beyond that.

Cristopher Kennedy
Research Analyst - Financial Services & Technology at William Blair

Understood, very clear. Thank you.

Operator

Your next question comes from Adam Hojkis of Goldman Sachs. Your line is already open.

Adam Hotchkiss
Adam Hotchkiss
Analyst at Goldman Sachs

Great. Thanks so much for taking the questions. I just want to follow-up on the last question around Mantle's existing base. When you were evaluating Mantle, to what degree do you think that you're going to be able to cross sell the Alchemy platform into Mantel's customers? I know these contracts are a little bit longer than other industries and there may be a little bit less visibility into that, but what comfort do you have over the next couple of years that you might see some incremental success or accelerated bank traction due to that?

Adam Hotchkiss
Adam Hotchkiss
Analyst at Goldman Sachs

Thanks so much.

Bryan Hill
CFO at Alkami

The existing Mantle client base segments very similar to Alchemy. And what I mean by that is financial institutions with assets between $500,000,000 and $10,000,000,000 that represents a significant percentage of the mental client base and that's also similar to Alchemy. Our sweet spot where we have found the greatest penetration has been assets in the size of $500,000,000 to $10,000,000,000 for financial institutions. So, there's no reason to expect that we would not have the ability to cross sell the Alchemy digital banking platform into the Mantle base or to sell the Mantle solution and offering into the Alchemy installed base. So we think it's very complementary.

Bryan Hill
CFO at Alkami

We feel that both companies have had significant success in the same area and segmentation of the market.

Adam Hotchkiss
Adam Hotchkiss
Analyst at Goldman Sachs

Okay. That's really clear. Thanks. And then just on the renewal pull forward you mentioned, just curious if that impacts your cross sell or expansion opportunities into 2025 and how you would typically see a year after a pull forward of renewals be impacted from a growth perspective? Thanks so much.

Bryan Hill
CFO at Alkami

We're having success cross selling, whether it's a time for renewal or not. So our client sales team has really begun to gain momentum and has a pretty strong ability to cross sell into a client, whether it's one year after signing the contract, the client just went live or if it's five, six years later at the point of renewal. So we would expect that our client sales team to continue to contribute in that 45% plus to total contract value sold.

Adam Hotchkiss
Adam Hotchkiss
Analyst at Goldman Sachs

Very clear. Thanks so much.

Operator

Your next question comes from Alice Smith of JPMorgan. Your line is already open.

Analyst

Great. Thank you so much for taking our questions. So first, I was hoping to start on the gross profit margin line. You've had pretty stable gross profit margin expansion since at least 2020. And I think you mentioned that Mantle should be gross profit margin accretive in 2025.

Analyst

Can you remind us you're thinking about a longer term margin trajectory for the gross profit margin line? Thank you.

Bryan Hill
CFO at Alkami

So what we've provided is by 2026, the Alchemy core business will be at 65% gross margin. We gave that guidance, that longer term guide about three years ago. We're a bit ahead of that. We'll exit 2025 at a run rate of 65% and you should expect Mantle to be accretive 100 basis points.

Analyst

That's very helpful. Thank you. As we think through the other OpEx line items and the EBITDA deficit that Mantel causes for the first year, how would you allocate those costs roughly?

Bryan Hill
CFO at Alkami

Well, let's just talk about the EBITDA loss. So you should think about $5,000,000 of EBITDA loss occurring over the second, third and fourth quarters of twenty twenty five, '2 million dollars in the second quarter, '2 million dollars in the third quarter and around $1,000,000 in the fourth quarter. From a gross margin perspective, Mantle has been able to achieve around the 75% gross margin. The OpEx categories from a contribution by category, they're a little bit heavier on sales and marketing than Alchemy is, but they align pretty closely to how Alchemy aligns.

Analyst

Makes a

Analyst

lot of sense. Thanks so much.

Operator

Your next question comes from Jeff Van Rhee of Craig Hallum Capital Group. Your line is already open.

Analyst

Hey guys, congrats on the quarter. This is Daniel on for Jeff. Just one, the cross sell motion, how that will look? If I'm understanding correctly, and the Alchemy account opening offering currently doesn't cover some of the needs that the customers have such that a lot of them will maybe have some other offering in place. Just what is the Alchemy base have right now for the most part?

Analyst

And so what sort of would that be that you'd be displacing as you're coming in with mantle to cross sell?

Alex Shootman
CEO at Alkami

Yes, as I said earlier, the customer base will have a range of technologies that they're trying to use to accomplish this. They might have and given Alchemy's product penetrate the product that we have today, given our product penetration in our customer base, the majority of our customers will have the following scenario as opposed to an Alchemy product. They'll either be trying to use something off of their legacy core, they'll be using another third party product. And but in a lot of cases, they will have tried to write some of their own software to stitch together this process. Some of the things that are really unique about Mantle is how they streamlined the process and embedded automated KYC as an example.

Alex Shootman
CEO at Alkami

And so when a customer sees this process and how it manifests itself from a user experience, it's just a very different experience than they're able to deliver today. So I would anticipate that our client sales team that covers our existing bank customers and our existing credit union customers will be after closure, we'll be bringing the Nantel product to any or all of our customers for the potential of cross sell. There's not really a customer that we have that we would not bring the mantle product to from a cross sell perspective.

Analyst

Okay, that's helpful. And then sort of just on the flip side, on the impact on the mantle side, just as they work with a lot of other people in the marketplace, like I believe they're part of the Q2 marketplace, just how will those relationships, if at all be impacted after getting acquired by you guys? Is there any inherent churn contemplated there?

Alex Shootman
CEO at Alkami

We would hope that they would continue to be successful in all the markets that they serve. That's our goal. Our goal would not be to do anything that would truncate their success in any market that they're serving. That said, you could imagine that our product teams have already had a lot of great ideas. One of the things that Brian talked about earlier, I talked about in my prepared remarks is if you think about having transactional data that you're using in the onboarding process and then that onboarding process is showing up natively in the digital banking experience, that's a really attractive design for a client.

Alex Shootman
CEO at Alkami

So we're not going to do anything to truncate any of their success in any market. But you would imagine that we've got a lot of product ideas in terms of how we integrate digital banking with Mantle with our data and marketing platform.

Analyst

And congrats.

Operator

There are no further questions at this time. So this concludes today's conference call. Thank you for your participation and you may now disconnect.

Analysts
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Key Takeaways

  • Alchemy delivered 26% revenue growth in Q4 2024 to $89.7M and over $10M in adjusted EBITDA, capping a full-year 2024 with $333.8M in revenue (+26%) and adjusted EBITDA of $26.9M versus a $1.6M loss in 2023.
  • The company’s five-point plan drove execution with 42 bank contracts (versus 8 in 2021), add-on sales representing 45% of new bookings, 90% of microservice traffic migrated to Kubernetes for 99.99% uptime, and a 26% reduction in hosting cost per user, contributing to a ~600 bps gross margin expansion since 2021.
  • Alchemy agreed to acquire Mantle for $400M enterprise value, adding an omni-channel onboarding and account-opening solution with 145 clients and ~8M users, creating cross-sell opportunities, expected to yield >30% IRR and be EBITDA-accretive by 2026.
  • For 2025, Alchemy provided guidance of $93.5–$95M in Q1 revenue (+23–25% Y/Y) and full-year revenue of $440–$445M (+32–33%), with adjusted EBITDA of $47–$51M, incorporating ~$30M of Mantle revenue and a $5M EBITDA drag.
  • The platform ended Q4 with 20M registered users (14% Y/Y growth), ARR of $356M (up 22%), $56.5M of ARR backlog, average revenue per user of $17.81 (up 7%), and digital banking ARR churn below 1%.
AI Generated. May Contain Errors.
Earnings Conference Call
Alkami Technology Q4 2024
00:00 / 00:00

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