Alkami Technology Q1 2025 Earnings Call Transcript

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April 30, 2025
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Operator

Hello, and welcome to Alchemy First Quarter twenty twenty five Financial Results Conference Call. My name is John, and I will be your operator for today's call. Following the presentation, we will conduct a question and answer session. I'd like to turn the conference over to Steve Koch, Vice President of Investor Relations. Steve, please go ahead.

Steve Calk
Head - Investor Relations at Alkami

Thank you, John. With me today on the call are Alex Shuetman, 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 and the sections in our latest 10 ks entitled Risk Factors and Forward Looking Statements. Statements made during the call are made as of today, and we undertake no obligation to update or revise these statements. Also, 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

I'll now 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 a great quarter for ALCOMI. During the first quarter of twenty twenty five, ALCOMI grew revenue over 28% and generated over $12,000,000 in adjusted EBITDA. We exited the quarter with 20,500,000 registered users on the Alchemy platform, up 2,300,000 compared to the prior year quarter.

Alex Shootman
CEO at Alkami

And we successfully closed the Mantle acquisition. In Q1, we continued the momentum we built since becoming a public company and are positioned to achieve the 2026 financial objectives we outlined during our Q4 twenty twenty two earnings call. When we discussed those objectives, our annual revenue was less than half our guidance for 2025 and adjusted EBITDA was a loss of $18,000,000 Today, our adjusted EBITDA position has improved fourfold. And given our implementation backlog, sales pipeline, product portfolio and successful completion of the Mantle acquisition, we remain confident in the objectives we discussed over two years ago. The number one question I'm asked by investors these days is, how is the demand environment?

Alex Shootman
CEO at Alkami

Consistent with the last few years, we have not seen any decline in the demand for digital banking. I believe the reason for this is that the need for digital banking in regional and community financial institutions is not elastic. It is mandatory innovation if you are going to compete with Chase and Chime in today's market. Our pipeline remains strong, and the demand numbers we see in our instrumentation are consistent with my conversation with clients. Since March, not counting clients I've met at a recent user conference, had had 29 face to face client meetings.

Alex Shootman
CEO at Alkami

To all of the noise we hear in the macro environment, no one talked about reductions in digital banking. I left those meetings with two observations. First, none of our clients are detached from the uncertainty in the overall macro environment. In times of uncertainty, good bankers prepare for multiple scenarios. But in each of their scenarios, their digital agenda remains a priority.

Alex Shootman
CEO at Alkami

For most, their digital banking has moved from the budget agenda to the capital allocation agenda. They are thinking about how they grow their business digitally with the same or more intensity as their branch strategy. Second, with an eye towards growth, they are focused on account opening and onboarding. Two weeks ago, was at a client in the Midwest. And the CEO said, if I only had $1 to spend on any new projects, I'd put $0.90 on account opening and pocket the rest.

Alex Shootman
CEO at Alkami

We have to add customers to thrive. And because of the younger generations we are pursuing, it has to be an efficient and elegant experience. So far, despite macro uncertainty, we continue to enjoy a healthy pipeline, which is at least as strong as this time last year. We believe this is a testament to the necessity for digital banking, the quality of Alchemy's people and products, and the early stages we are still in with respect to the digital transformation of the regional and community financial institution market. Demand was on display a month ago at CoLab, our annual user conference in Nashville with over 900 attendees representing more than 300 institutions.

Alex Shootman
CEO at Alkami

This size audience continue to trend a record attendance for us. And with a majority of attendees in leadership roles, it demonstrated that digital banking is a strategic focus in our market. The shift we continue to see from prior collabs is a recognition that digital banking is not just a service strategy. Our prospects and clients see digital banking becoming a sales and service platform. They have to acquire an inventory of trusted assets called deposits.

Alex Shootman
CEO at Alkami

They have to sell that inventory as loans. And they have to make money serving their account holders with fee based services that are valuable, such as wires, FX, credit cards, and interchange. To do this well, they have to be trusted, knowledgeable, and safe. And they are pursuing these attributes by making personalized digital connections with their account holders. From the main stage, I shared an interview with the CEO of one of our largest clients who handed me the phrase that best describes personalization in our industry and what we are building with our data platform.

Alex Shootman
CEO at Alkami

He called it anticipatory banking. To deliver the digital and sales service platform designed by our market that enables anticipatory banking, I shared with the audience that we are spending our R and D dollars on the following product and platform priorities. Our product investments will go into four areas, onboarding and account opening, retail and commercial functionality, user experience, and personalization. Our platform investments are focused on continuing to drive scalability, extensibility, maintaining industry leading reliability, and building out our data capability. Account opening and onboarding generated the most interest in our event, which is understandable since the Mantle transaction closed days before our conference.

Alex Shootman
CEO at Alkami

But mostly the interest was generated by the strategic nature of a great onboarding and account opening experience. Whereas one client told me, we were all about customer acquisition. Everything else is just noise. The mantle sessions were full. The Mantle keynote was the highest rated session.

Alex Shootman
CEO at Alkami

And during the first quarter of twenty twenty five, '5 Alchemy clients purchased Mantle. And two of our forecasted first quarter new logos asked to revise their deals to include Mantle. One of these deals closed in April. We expect the other deal to close shortly. This is exciting for us as the cross selling of Mantle into the Alchemy client base has just begun.

Alex Shootman
CEO at Alkami

We have no shortage of product opportunities. And as we previously discussed, we are building a strategic development center in the national capital region of India. The purpose of this investment is to increase our product and engineering capacity while maintaining the profitability commitments we've made to our investors. Our efforts with Alchemy India are well underway. We are now running a functional office with over 40 alchemists with more to come throughout the year.

Alex Shootman
CEO at Alkami

We're also focused on hiring leadership roles and building out our long term capacity with the goal of supporting hundreds of alchemists in India in the coming years. We expect Alchemy India to drive innovation and bring products to market that are new sources of revenue, all while delivering operating leverage in our business. In closing, we are proud to deliver a great quarter for our investors. We're grateful to our clients for trusting us with their business. And I appreciate the effort each alchemist puts into their work and the values they demonstrate.

Alex Shootman
CEO at Alkami

Thank you for getting it done and doing it right. Before I hand the call over to Brian, I'd like to comment on the news in our press release regarding Brian's retirement. When Brian shared with me that he was considering moving to the next phase of his life, we both agreed that this was excellent timing, given the performance and health of the company. Brian has done a great job as CFO. He's been at the company while revenue has grown six fold and has guided Alchemy to a positive adjusted EBITDA position.

Alex Shootman
CEO at Alkami

He was instrumental in Alchemy's IPO and played a key role in four acquisitions. He's made my life easy as we exceeded our numbers every quarter since going public. In true Brian Hill fashion, he's finishing strong by providing the company and our shareholders with an extended transition to his retirement. Brian will remain the CFO of Alchemy until either a new CFO comes on board or 02/27/2026, whichever comes first. I'll now hand the call to Brian to take us through our financial results.

Bryan Hill
CFO at Alkami

Thanks, Alex, and good afternoon, everyone. Before we dive into the financial results, I want to take a moment to say a little more about the news that Alex just shared. After thirty six years of experiences and relationships I will forever cherish and having the opportunity to be a part of successful organizations, I've decided to retire, resulting in my resignation as the Chief Financial Officer of Alchemy Technology. I will continue as Alchemy's CFO while the company identifies and onboards a replacement or 02/27/2026, whichever date occurs first. I also plan to continue in a consultative capacity through December of twenty twenty six or an earlier date if my services are no longer necessary to ensure a smooth transition of responsibilities.

Bryan Hill
CFO at Alkami

This was not an easy decision for me, but I believe it is the right time for my family as we move into the next chapter of life. I want to express my heartfelt gratitude to all Alchemists, especially the CFO team, as well as our Board of Directors and our shareholders for the support and trust you've placed in me over the years. It has been an incredible journey, and I am proud of what we've accomplished together, particularly in driving the company's growth and scaling its profitability. We have a strong leadership team in place, and I'm confident that Alchemy will continue to thrive and achieve its objective of becoming the number one digital banking platform. Thank you again for your support.

Bryan Hill
CFO at Alkami

Now I'll turn to discuss our financial performance. In the first quarter of twenty twenty five, we continued to drive exceptional revenue growth and exceeded our profitability We also completed the acquisition of Mantle, the largest in our history, completed a convertible notes offering and expanded our credit facility. Today, we are reporting results inclusive of the Mantle acquisition, which we closed on 03/17/2025. Consistent with our prior acquisitions, we do not include acquired clients or users in our digital banking platform counts. Our reported clients and users reflect only those on our digital banking platform.

Bryan Hill
CFO at Alkami

All other financial metrics include the impact from acquisitions, such as ARR, ARR backlog and average revenue per user. In the first quarter, we achieved total revenue of $97,800,000 representing year over year growth of 28.5% and improved adjusted EBITDA to $12,100,000 compared to 3,800,000 in the year ago quarter. Revenue for the first quarter included a few unexpected items, such as $1,400,000 from closing the Mantle acquisition earlier than expected and $600,000 of revenue originally expected to occur in the second quarter of twenty twenty five related to our annual client conference collab. Subscription revenue grew 27% in the first quarter and represented 95% of total revenue. We increased ARR by 33% and exited the quarter at $4.00 $4,000,000 We currently have approximately 68,000,000 of ARR in backlog for implementation, the majority of which will occur over the next twelve months.

Bryan Hill
CFO at Alkami

Included in our backlog are 36 new digital banking clients representing 1,100,000 digital users. We exited the quarter with two seventy eight live clients and 20,500,000 registered users on our digital banking platform, representing registered user growth of approximately 2,300,000 or 13% compared to last year. Over the last twelve months, we implemented 37 financial institutions and three clients left our platform. As a reminder, because of the long term nature of our contracts, we have three to four quarters of visibility into upcoming client attrition. Currently, we expect to churn four clients in 2025, representing less than 1% of ARR.

Bryan Hill
CFO at Alkami

Over the long term, we model digital banking ARR churn at 2% to 3% per year. The primary driver of churn continues to be M and A and consolidation within our client base. We ended the quarter with an RPU of $19.74 up 18% compared to a year ago, driven by the acquisition of Mantle, add on sale success, and the addition of new clients who tend to onboard with a higher average RPU. We continue to see broad based demand across our product portfolio evidenced by our sales pipeline, new logo and client renewal success, our ability to cross sell new products into our installed base, and now the rate in which we are seeing the market adopt the Manul onboarding and account opening solution. For the first quarter, we signed four new digital banking platform clients and renewed four existing clients, representing eight contract signings.

Bryan Hill
CFO at Alkami

Mantle added 16 new clients, five of which are Alchemy digital banking clients. Excluding Mantle's performance, our add on sales effort represented approximately 57% of new sales for the quarter. Regarding renewals, we expect a total of 25 renewals in 2025, slightly below our recent average as we pull forward several renewals into 2024. Our remaining performance obligation was approximately $1,600,000,000 representing 3.9 times our ARR and up 31% compared to a year ago. Now turning to gross margin.

Bryan Hill
CFO at Alkami

For the first quarter of twenty twenty five, we delivered non GAAP gross margin of 64.3, representing over two fifty 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 sales operation. Moving to operating expenses. For the first quarter of twenty twenty five, operating expenses of $51,200,000 or 52% of revenue represented year over year operating leverage of approximately 500 basis points. We primarily drove operating leverage across R and D and G and A, where we continue to realize operational scale.

Bryan Hill
CFO at Alkami

Related to sales and marketing expense, we typically conduct co lab in the second quarter, resulting in approximately $3,000,000 of seasonally higher expense during this quarter. However, in 2025, co lab occurred during the first and second quarters, resulting in seasonally higher operating expenses in both quarters. Regarding go to market efficiency, we continue to rank among the best in SaaS. During the last twelve months, we increased ARR 1.2 dollars for each dollar of sales and marketing spend, excluding the impact from the Mantle acquisition and the timing of CoLab. Our adjusted EBITDA in the first quarter was $12,100,000 better than the high end of our expectations and representing an adjusted EBITDA margin of 12.3%.

Bryan Hill
CFO at Alkami

We are investing in our captive offshore capability, and as we discussed in the last several quarters, we expect an investment of approximately $5,000,000 during 2025. We're 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. Related to our balance sheet, we ended the quarter with $95,000,000 of cash and marketable securities. We also announced an amendment to our credit facility, which expanded our revolver from $125,000,000 to $225,000,000 and extended the maturity date to February. Before turning to guidance, let me provide a post closing recap of the Mantle acquisition.

Bryan Hill
CFO at Alkami

We closed the Mantle acquisition on March 17, few weeks earlier than expected. As we announced in February's press release, we agreed to acquire Mantle for an enterprise value of $400,000,000 on a debt free and cash free basis, and also subject to customary purchase price adjustments. After these adjustments, the final enterprise value is $393,000,000 which includes the following. $375,000,000 of purchase consideration, dollars 11,000,000 in equity compensation for Mantle employees replacing their unvested equity compensation at the time of acquisition, and $7,000,000 categorized as current period compensation and prepaid compensation, which is presented as a cash outflow from operating activities on the cash flow statement. The three seventy five million dollars of purchase consideration was financed as follows: $13,000,000 from our balance sheet cash, dollars 60,000,000 from our credit facility, and $3.00 $2,000,000 from net proceeds of convertible notes issued on March 10 after the accounting for the cost of the capped call.

Bryan Hill
CFO at Alkami

The convertible notes had a 1.5% coupon and a 37.5% conversion premium. As mentioned earlier, we also entered into a capped call transaction linked to the convertible notes, effectively raising the conversion premium to 100%. Now turning to guidance. For the second quarter of twenty twenty five, we are providing guidance for revenue in the range of $109,000,000 to $110,500,000 which represents total revenue growth of 33% to 35%. For adjusted EBITDA, we are providing second quarter guidance in the range of $9,000,000 to $10,000,000 which includes a full quarter of adjusted EBITDA loss for Mantle.

Bryan Hill
CFO at Alkami

For the full year of 2025, we are providing guidance for revenue in the range of $443,000,000 to $447,000,000 representing total revenue growth of 33% to 34% and organic revenue growth of 25% to 26%. We are also providing adjusted EBITDA guidance of $49,500,000 to $52,500,000 For full year guidance, it includes a revenue contribution of approximately $31,400,000 and an adjusted EBITDA loss of $5,000,000 from the Mantle acquisition. We believe the Mantle business will be accretive to adjusted EBITDA 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. In closing, we continue to drive great financial results while executing against our long term objectives.

Bryan Hill
CFO at Alkami

We continue to leverage our unique financial model and strengthen our competitive position, making us one of the premier SaaS investments in the market. With that, I'll hand the call to the operator to take your questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2.

Operator

Your first question comes from the line of Alexey from JPMorgan.

Elyse Kanner
Elyse Kanner
Equity Research Analyst at JP Morgan

Hi. This is Elise Kenner on for Alexey Gogalev. So you did confirm the $5,000,000 in spend for the offshore initiative. Was it still a lighter expense in Q1? And is kind of the cadence of the expense and benefits still proceeding as expected?

Elyse Kanner
Elyse Kanner
Equity Research Analyst at JP Morgan

Thank you.

Bryan Hill
CFO at Alkami

That's right. It is a lighter expense in Q1, and actually the majority of that expense will be concentrated in the third and fourth quarter of twenty twenty five. But we're making a lot of progress. I mean, we now have 40 Alchemists in our India global capability center, so we're super excited about that. We also feel that by the end of this year, we'll start approaching 170, one hundred and 80 offshore employees.

Bryan Hill
CFO at Alkami

And keep in mind, many of those are transferring from the current provider that we have today that's a third party provider. We exited 2024 with around 125 consultants from that third party.

Elyse Kanner
Elyse Kanner
Equity Research Analyst at JP Morgan

Got it. Thank you. And then when you cited the growth in revenue per user, was the order of factors that you mentioned how much they're contributing? So is Mantle maybe the largest contributor to that growth, followed by success in add on sales, then new clients adopting more products.

Bryan Hill
CFO at Alkami

That's right. So the way that and I outlined this on the call, but the way that we treat all of our acquisitions, if if the AR we include all the ARR in the RPU calculation. However, we only include digital banking platform registered users. And so as a result of that, Mantle contributed about 1.8 to RPU this quarter. And then going forward, we'll expect a more normalized growth rate of around 78%.

Elyse Kanner
Elyse Kanner
Equity Research Analyst at JP Morgan

Got it. Thank you so much.

Operator

Your next question comes from the line of Chris Kennedy from William Blair.

Cristopher Kennedy
Research Analyst, Financial Services and Technology at William Blair

Congratulations,

Cristopher Kennedy
Research Analyst, Financial Services and Technology at William Blair

Brian, on the announcement. Alex, you talked about the strong cross selling initially at Mantle. Can you just frame the opportunity there and maybe compare it with the experience that you've had at ACH Alert or segment?

Alex Shootman
CEO at Alkami

Yeah, thanks. We were pleased that in the quarter, Mantle had five transactions that they sold into the Alchemy base. And what's exciting for us is that's really before we start to put in the effort to do all of the account planning work, the account profiling work, getting the sales teams working together on pursuits. And so that initial success along with the progress that we're seeing internally provides us a lot of confidence in the cross selling opportunity within the base. I would expect if you looked at our ACH acquisition, that was more of a standalone product and it was applicable to some parts of our base.

Alex Shootman
CEO at Alkami

The segment acquisition was more of a product that would be integrated into our sales motion. And it has been more applicable to our entire base. My expectation would be that the mantle acquisition behaves more like the Segment acquisition than the ACH Alert acquisition.

Bryan Hill
CFO at Alkami

Yeah. And Chris, I'll add a couple of comments to Alex's. What we found with Segment, as you're aware, given it's a sales and marketing product, it's a newer solution in the space, it took us a while to identify how to get to the right buyer in our end market. And so it took some time to gain the traction for segment to become a part of, like now 70% of our new logo transactions. And then even the cross sell effort was a little bit more challenging because it was generally a different buyer in the financial institution.

Bryan Hill
CFO at Alkami

That's not the case with Mantle. Mantle oftentimes is the same or certainly common interest buyer in the financial institution. Mantle has a more established go to market effort in place. And so I would expect the success that we ultimately have realized on segment, we're going to achieve that much sooner as it relates to Mantle.

Cristopher Kennedy
Research Analyst, Financial Services and Technology at William Blair

Got it, very helpful. And then just a follow-up on Mantle. The account opening is clear. Can you just talk a little bit about the LOS opportunity with Mantle and kind of what the competitive landscape is in that market?

Alex Shootman
CEO at Alkami

When we made the last call when we made the announcement about mantle, what we said at that time, which is still the same today, is that Mantle has a group of development customers for whom they are building an LOS capability. And we are eagerly tracking that effort. And when that effort is successful, then as a company, we'll make a decision whether or not we're bringing an LOS application to market. So I want to be clear though this is still a development effort. It's a development effort with a set of clients.

Alex Shootman
CEO at Alkami

We expect the effort to be successful. But we'll make a decision about bringing a product to market more broadly after we see the results of that development effort.

Cristopher Kennedy
Research Analyst, Financial Services and Technology at William Blair

Understood.

Cristopher Kennedy
Research Analyst, Financial Services and Technology at William Blair

Thanks for taking the

Operator

next question comes from the line of Jacob Steffen from Lake Street Capital Markets.

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets, LLC

Congrats,

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets, LLC

Brian, on all the success you've had with Alchemy here. Just wanted to touch a little bit on the Mantle acquisition. Maybe you could kind of tell us where you're seeing the most traction? Is it on the credit union side? Is it banks?

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets, LLC

Is it broad?

Alex Shootman
CEO at Alkami

Right now we're seeing balanced demand on both banks and credit unions. As we discussed in the acquisition call, one of the things that we really liked beyond the culture and the people of Mantle is the product itself serves both banks and credit unions and serves both retail and commercial. So right now we're seeing pretty balanced demand in both cases. What's driving the demand and I mentioned this on the call every one of our customers if you think about the credit union side, the average age of a customer in a credit union tends to be skew a little bit older than the average age of a customer in a bank. And every one of our CEOs knows that.

Alex Shootman
CEO at Alkami

And every one of our CEOs is developing strategies to attract the next generation of members. And the most important element of the strategy to attract that next generation of members is an account opening experience that matches the kind of account opening experience that folks are used to in all other aspects of their lives. So for us, what's exciting is it's balanced demand in both bank and credit union. But the demographics and the business strategy in the credit union, we think are going to be a really nice tailwind for driving Mantle into the credit union space.

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets, LLC

Okay, got it. That's helpful. And then maybe just touching on the backlog, 68,000,000 of ARR, sounds like a lot of that kind of uptick is from the Mantle acquisition, but maybe what's the breakdown of banks to credit units in that 36 new customers?

Bryan Hill
CFO at Alkami

Yes, so we got 36 clients in backlog and 16 of those are banks. As you would expect, the banks are carrying a much higher RPU of around $30 The credit unions are carrying an RPU of just under $20 The sequential step up in backlog from Q4 is largely driven by Mantle. Mantle has a significant ARR backlog as well as a significant number of financial institutions backlog. It's around 50 financial institutions in backlog for now.

Jacob Stephan
Senior Research Analyst at Lake Street Capital Markets, LLC

That's great color. I appreciate you taking the questions. Congrats.

Operator

Your next question comes from the line of Charles Neben from Stephens. Your line is now open.

Charles Nabhan
Research Analyst at Stephens Inc

Good afternoon, and thank you for taking my question. I want to ask Chris' question in a from a slightly different angle. Sounds like there's some early signs of progress in terms of cross selling Mantle into your existing base. So I understand you didn't change the assumptions for the full year 2025 guide, but is there anything that's occurred over the past few weeks since the close that made you rethink or change the way you're going to approach sales and marketing or cross sell, maybe accelerating some of your initiatives over the next year to drive synergies over the medium to long term?

Alex Shootman
CEO at Alkami

The thesis that we had in the acquisition remains how we plan to execute the business. There's a fantastic sales and marketing machine inside of Mantle. And that machine is going to continue to run and sell Mantle new logos in the broader market side of outside of the Alchemy customer base. Then we have our client sales executive team that's assigned to our customer base. They will be selling mantle into our customer base.

Alex Shootman
CEO at Alkami

And then we have an Alchemy new logo sales team that's selling new logo online banking. And they are selling Mantle into new logo online banking opportunities. So that was the thesis that we had when we made the acquisition. And that's the plan that at least for this this point in time, that's the plan that we're going to continue to execute against.

Charles Nabhan
Research Analyst at Stephens Inc

Got it. And as a follow-up, really nice result on the RPO growth this quarter. And I understand some of it is from some of it is probably from Mantle. But I was wondering if you could parse out how much is on how much of the growth was on an organic basis? And if there were any anything unusual in terms of like larger deals or pull forwards and renewals that occurred during the quarter?

Charles Nabhan
Research Analyst at Stephens Inc

No. We we

Bryan Hill
CFO at Alkami

experienced in 2024, we had a lot of good renewal success. So a lot of the pull forwards we experienced were in 2024. We had eight total contract signings in the first quarter of twenty twenty five, half of those were renewals. So the combination of those eight, though, were the driver of organic RPO growth, which is around 20%. And then, of course, we drop in mantle that drives the other 11 percentage points of growth year over year.

Charles Nabhan
Research Analyst at Stephens Inc

Got it. Thanks all the color, and Brian, congratulations on your

Charles Nabhan
Research Analyst at Stephens Inc

announcement.

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

Thanks, Chad.

Operator

Your next question comes from the line of Jeff Van Di from Craig Hallum. Your line is now open.

Jeff Van Rhee
Partner & Senior Analyst - Equity Research at Craig-Hallum Capital Group LLC

Great. Thanks for taking the questions. And Brian, I'll add my congrats. You'll be missed. Sorry to see you going, but certainly wish you all the best.

Jeff Van Rhee
Partner & Senior Analyst - Equity Research at Craig-Hallum Capital Group LLC

A number of questions, a few housekeeping mostly. In terms of the analytics side, I want to circle back to that maybe a little bit. Where is that in terms of I think I might have heard Alex reference an attach rate on new bookings, but just if you could state that again and maybe in the context of total revenue, wondering where you are at this point in terms of analytics.

Bryan Hill
CFO at Alkami

Yeah, we don't split out the revenue, Jeff, as you can imagine, because the way we go to market is a combined offering. When start unpacking discounts and those kinds of things, you really kind of start losing the trail on revenue at an individual basis. But what we've been experiencing, and this has been for, I would say, the last four to six quarters. We're having an attachment rate of about 70% of MANL on all new logo wins. I'm sorry, yes, segment, all new logo wins.

Bryan Hill
CFO at Alkami

And then even for ACH Alert, when it's a bank FI that we're winning, we have an attachment rate 75% up to 80%. So Mantle carries a much higher average ARR than both of those solutions, And we feel that we can achieve somewhere close to the segment attachment rate. So when you think in terms of deal value, a couple of things should happen. We should see a higher deal value. And then with these Mantle differentiation, we should also start experiencing a bit higher win rate on new logo wins.

Jeff Van Rhee
Partner & Senior Analyst - Equity Research at Craig-Hallum Capital Group LLC

Very helpful. And you continue to see the add on add ons ramp as well. Any thoughts on on goals for add ons as a percent of the bookings for the year for 2025?

Alex Shootman
CEO at Alkami

It's a long term shape of the business that we've articulated for a few years is that in terms of new ARR, we'd like half of that to come from add on sales, half of that to come from new logos. And in terms of new logos themselves over time, we'd like half of that to come from credit unions and half of that to come from banks.

Bryan Hill
CFO at Alkami

That's right. And I'll only qualify what Alex just mentioned is we'll include Mantle as an add on sale just like we do segment and ACH Alert when we sell those sell that into a new logo for those products. So in other words, not a part of a new logo deal. And so you will see the 50% from add on sales trend up over time as Mantle continues to have success just adding new logos to their book of business.

Jeff Van Rhee
Partner & Senior Analyst - Equity Research at Craig-Hallum Capital Group LLC

Yes, very helpful. And then maybe just last, I think Alex, it might have been in the script of

Jeff Van Rhee
Partner & Senior Analyst - Equity Research at Craig-Hallum Capital Group LLC

the release, but you talked

Jeff Van Rhee
Partner & Senior Analyst - Equity Research at Craig-Hallum Capital Group LLC

about continue to lead the industry in share gains. Just expand on that a little bit. Any thoughts any quantification around that or in particular where that's coming from or most interestingly maybe changes in where that share gain is coming from?

Alex Shootman
CEO at Alkami

Those comments would be related to third party data that measures users, digital users in the marketplace. And the third party data that we use is Fi Navigator. And so that's the source of the data.

Bryan Hill
CFO at Alkami

Yeah, when you look at the top five market share owners in terms of users, Alchemy is outperforming all five at a pretty fast rate. No one's really adding 2,500,000 to 3,000,000 digital users a year. But in terms of just pure percentage gain and market share, Alchemy is leading the path.

Jeff Van Rhee
Partner & Senior Analyst - Equity Research at Craig-Hallum Capital Group LLC

Got it. Great. Thanks for taking the questions, guys. Appreciate it.

Operator

Your next question comes from the line of Patrick Walravens from Citizens Bank. Your line is now open.

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

Okay. Great. Thank you. Know, Brian, everyone else is congratulating you, but I'm sad to see you go. So when did you decide?

Bryan Hill
CFO at Alkami

When did I you know, Pat, I knew out of everyone who asked me this question, it was gonna be Pat Walraven. Yeah. And I'm I'm I'm gonna miss you, Pat, because I really enjoy working with you. But but no, seriously, to answer the question, you know, this is obviously a a big decision for me. It's one where you take a lot of things into consideration.

Bryan Hill
CFO at Alkami

And I reflected on really the success we've had at Alchemy. And then you factor in your age and changing family circumstances and those kinds of considerations, and then you make the decision. And so the decision for me was really 2026 is the year that I plan to walk away from this. And so then you really come down to a couple other key considerations is, well, what's the best time to announce it once you make the casual decision and not really the formal decision of communicating with the company? And what I thought about, Pat, as it relates to that is really how are you leaving the company where you were the CFO?

Bryan Hill
CFO at Alkami

Because it's very important to me that I'm walking away from a company knowing that it's performing well and it's going to continue to perform well. Brian Hill's CFO exit is not going to be a situation where a company drops off after the CFO leaves. And that's very, very important to me because we've accomplished way too much at Alchemy for that to be the case. And then the last consideration, or I guess a couple more considerations, is around, well, what about the team? What about the CFO team?

Bryan Hill
CFO at Alkami

And the CFO team is more than ready to deal with the challenges that can occur by bringing in a new CFO. It is the absolute best CFO team I've ever worked with, and I'm very proud to have built this team over the last six years. And then finally, it's how much time do you want to give and provide the company? And in order for Alchemy to bring in the right CFO, which it should attract top talent given our performance, given the management team and what we're trying to accomplish here, I wanted to make sure that Alex and the board had plenty of time to find the right candidate. So not a situation where there's a quick exit of a CFO and there's a shot clock running that the company feels like they need to make a rush decision.

Bryan Hill
CFO at Alkami

I mean, Alchemy and Alex needs to do this very thoughtfully, and they need to do it, quite honestly, with the transparency of, you know, it being known what's going on and not a confidential search and those kinds of things. So so really all that played into it, Pat, and that's how we landed where we are today.

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

Yeah, that's actually super helpful. Okay, so Alex, for you, what are you looking for in the next candidate?

Alex Shootman
CEO at Alkami

We've scraped some of Brian's skin cells and we've sent them off to a DNA place and we're cloning him right now. So just echo what Brian said. I think the company plus Brian had been thoughtful about providing investors with a long transition plan and then making the situation public so that we can execute a public search. With an asset like Alchemy, it's going to be a whole lot more effective executing a public search than trying to run a confidential search.

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

All right, great. And if I could do one more. Just big picture, Alex, what's the most important thing for you to get right over the next year?

Alex Shootman
CEO at Alkami

We have an opportunity to really create some space between us and the market from a differentiation perspective in the use cases and problems that we solve by bringing together digital banking, onboarding and account opening, and our data platform. And when we do that as a digital banking provider, there's just going to be a lot of space between us and everybody else, is going to in my opinion, which is going to really help our win rate. So that's probably the most important thing that we can do, Pat, in the near term is take what we understand as the use cases that we can deliver with this technology and bring it to life in some customers. And then have those customers show the outcomes that they've achieved from Alchemy. And that's to help with our competitive win rates.

Patrick Walravens
Analyst at Citizens JMP Securities, LLC

Great. Thank you both.

Operator

Your next question comes from the line of Adam Hotchkiss from Goldman Sachs. Your line is now open.

Adam Hotchkiss
Adam Hotchkiss
VP - Emerging Software Equity Research at Goldman Sachs

Great. Thanks so much for taking the questions. Pat is difficult to follow-up on, but echoing my best wishes to you going forward, I wanted to touch back on just broader capital allocation priorities at banks. You mentioned the $0.90 out of $1 going to digital account opening. I thought that was a pretty striking concentration.

Adam Hotchkiss
Adam Hotchkiss
VP - Emerging Software Equity Research at Goldman Sachs

Curious how sustainable you think that is and maybe just remind us what it is about the environment we're in today, whether that's just the operating environment or where FIs are in their broader digital banking transformations that's driving that?

Alex Shootman
CEO at Alkami

I want you to picture in your mind for a bit, you're in a regional bank or a credit union. And the technology platform that you have is an amalgamation of several different legacy capabilities that you're trying to operate on. And now your competition is Chase and your competition is Chime. And when somebody is opening an account in either of those environments, it's very elegant one or two minute experience that looks like any other new digital experience that they have. Now you're this regional bank and you're trying to recreate that experience and do that across all of these legacy technologies.

Alex Shootman
CEO at Alkami

And what those bank or credit union CEOs will tell me is they are personally embarrassed about the experience that they are providing to somebody where it's twenty minutes. It's walking to the branch and sign some paperwork. It's just nothing that is anything close to what people experience. Well, combination of alchemy and mantle allows a regional institution to punch way above its weight and deliver an experience that's every bit as good as a Chase experience or a Chime experience. And when you're faced with an existential need to add customers and to add members and to add deposits for the long term health of your institution, it's a really nice environment to sell into when you've got the right products.

Adam Hotchkiss
Adam Hotchkiss
VP - Emerging Software Equity Research at Goldman Sachs

Okay, understood. That's really helpful color. And then Brian, would you just remind us the integration lift that's left for Mantle? I know you mentioned a couple of cross sells already, which is great to hear. But what about the product makes it either easier or harder to fully integrate than some of your other acquisitions?

Bryan Hill
CFO at Alkami

In our view, there's not any major blockers there from an integration perspective. I mean, there's several different integrations you really have to think about. The first is how broadly have they integrated into the core offering of the larger core providers, and Mantle has made a ton of progress there. In fact, that's probably one of their more significant differentiators. And then there's the integration into our platform from a technology perspective.

Bryan Hill
CFO at Alkami

So we're delivering more when you sell Mantle and Alchemy together versus Mantle combined with one of our competitors. That'll take a little bit of time to accomplish, but we're already making moves in that direction. Then finally, there's the integration as it relates to operations and go to market. And as Alex pointed out in his prepared comments, we're already making a lot of progress in that area. So the Mantle team, the more I'm around them, the more impressed I am and impressed with this acquisition, how it is the correct strategy for Alchemy.

Bryan Hill
CFO at Alkami

I mean, involved in a lot of acquisitions over the last thirty six years, and I think Mantle is going to prove to be one of the best.

Adam Hotchkiss
Adam Hotchkiss
VP - Emerging Software Equity Research at Goldman Sachs

Great. Thank you very much.

Operator

Your next question comes from the line of Mayank Tandon from Needham. Your line is now open.

Mayank Tandon
Senior Analyst at Needham & Company

Thank you. Good evening, Brian. Let me extend my congratulations as well. It's been a pleasure working with you. It'll be missed.

Bryan Hill
CFO at Alkami

Thank you. No worries.

Mayank Tandon
Senior Analyst at Needham & Company

To Alex, Alex, as we came into this year, there was a lot of talk about deregulation in the banking industry. I know it's still early days with the new administration. What's sort of the feedback from your customers, both prospective customers and current customers, on any potential deregulation? And if you could be a little bit more specific in terms of if it does happen, what are the implications for a company like Alchemy?

Alex Shootman
CEO at Alkami

I'll tell you, the big thing that came out in a discussion is open banking really going to occur. And the reality is if open banking occurs, we think it's an opportunity for our customers to take share if they've got the right technology. Because all of a sudden, if you've got portability of accounts and you're in a local community and you feel disconnected from a mega bank and you've got the right technology to move people over to your institution, it gives you an opportunity to take share. So to the extent that open banking ever materializes in the conversations that we have with our customers, they think it's an opportunity for them to go on offense. But they would need the technology to be able to go on offense.

Alex Shootman
CEO at Alkami

But that's been the majority of the conversation that I've had with folks other than within some credit union executives. And this is I wouldn't call this as an opening up. But in some credit union executives, there's discussions about are the regulations going to change in terms of taxing credit unions or not taxing credit unions. But every single credit union executive that I talked to says, if it changes, we'll figure out, we'll make an adjustment, we'll figure out how to manage our business. So those have been the two conversations that I've been part of.

Mayank Tandon
Senior Analyst at Needham & Company

Got it. And then let me ask you this. I buy into the view, as you said, this is mission critical and the banks are still spending despite all the uncertain environment that we're in right now. What would it take for banks to then maybe slow spending? Have they talked about that?

Mayank Tandon
Senior Analyst at Needham & Company

Like, what would it actually take for them to push out some of these implementations by six, twelve, eighteen months? We haven't seen that yet, and it's great to hear the visibility in your model. But I'm just sort of playing devil's advocate. What would it cost you like derail some of the growth in the near term, if it were to happen?

Alex Shootman
CEO at Alkami

The conversations that I have with customer executives, they are managing their expenses, right? So they are managing their expenses more closely than they were managing their expenses a couple of years ago. But what they're doing is they are cutting off some other projects, but they're not cutting off their digital banking project. Remember, these contracts are five to seven year contracts. You have, let's call it a nine month to a year process to go through the conversion.

Alex Shootman
CEO at Alkami

So when you back up from the date that they need the conversion to go live, back up a year, and then say maybe a nine month sales cycle before that and recognize that we're selling into a budgeted line item. They're going to go through with their decision unless there was I can't game it. There'd have to be some extraordinary dislocation for them to stop going through some of these decisions. All I can say is it could happen. To date, we haven't seen it happen.

Alex Shootman
CEO at Alkami

To date, we've seen people following through with their decision process, their decision timelines, wanting to get the biggest constraint we normally have is we cap to some degree our conversion calendar because we want to make sure that we're doing a good job for our customer. So most of the conversations we have with a customer are, hey, let's make sure that we get you into our calendar in time for when your contracts up and making sure that we're doing a good job. And I would just say, to date, we haven't had any conversations about customers slowing down their decision process based upon economics on the digital banking side.

Bryan Hill
CFO at Alkami

And Maya, this isn't really a question of are you going to cut costs as it relates to your digital banking platform? As financial institutions are looking for areas for opportunity, most of them are working in a distributed network. And distributed networks are expensive. But if you have a channel that can touch a % of your base or you have the same cost in a single location that touches 10% of your base, you're gonna reevaluate the distribution of your offer versus cut the channel that has high touch as it relates to your customer base. So that's really the decision process that they go through and they think about.

Bryan Hill
CFO at Alkami

As it relates to implementation timelines and those kinds of things, I mean, they want to move to the new platform as soon as they can. So the real question for Alchemy is to make sure that you're investing in your platform, which we do. You're continuing to create a gap, and you can widen that gap from what the incumbent offers today, which we do both organically, and then we've also done with Mantle and the segment and ACH Alert acquisitions. And it's always staying ahead of the competition because the focus on digital banking is only going to increase. It's not going to decrease.

Alex Shootman
CEO at Alkami

So I would characterize our posture as rational optimists. So we're aware that something could change. We have not seen anything change yet in the demand environment.

Mayank Tandon
Senior Analyst at Needham & Company

That's a great perspective. Thank you so much for the details. Congrats.

Operator

Your next question comes from the line of Anthony DeLise from KeyBanc Capital Markets. Your line is now open.

Anthony DeLise
Anthony DeLise
Senior Equity Research Associate at KeyBanc Capital Markets

Hi. This is Anthony DeLise on for Alex Markgraf. Alex, your comments regarding clients not reducing digital banking is clear. However, I'm curious if you've observed any changes to the structures of the deals from your pipeline conversations due to the macro environment. And then my second question is, as Alchemy has made this push to serve more banks, is there anything you can share on how recent banking implementations have impacted your pipeline conversations with other banks?

Anthony DeLise
Anthony DeLise
Senior Equity Research Associate at KeyBanc Capital Markets

Thank you.

Alex Shootman
CEO at Alkami

I'll kind of turn to Brian. I haven't seen any deal construction differences in the new logos that are coming into our deals. In terms of the price points or the number of products that they're buying. What's going to begin to occur when we're talking to new banks that will emerge as we convert the bank customers that are in implementation into live customers is the new customers are going to increase their confidence in signing on to Alkerme because we'll now have three examples, four examples, five examples or more on a particular core. And in the bank market, there's a concentration of cores that's a little bit higher concentration in the bank market than there is in the credit union market.

Alex Shootman
CEO at Alkami

So in summary, my expectation would be as we convert the customers that are in the implementation of pipeline into live customers, That will increase our win rate over our number one competitor, which I want to remind us all that our number one competitor is staying with the incumbent. And so as these banks start seeing other customers come live on our platform, that will increase their confidence to not stay with the incumbent and move over to Alchemy.

Operator

Your next question comes from the line of Alexey Gogolev from JPMorgan. Your line is now open.

Elyse Kanner
Elyse Kanner
Equity Research Analyst at JP Morgan

Hi. Thank you. One more quick one from me. How much of ARR was inorganic this quarter?

Bryan Hill
CFO at Alkami

Our organic ARR growth was right at 22% for the quarter.

Elyse Kanner
Elyse Kanner
Equity Research Analyst at JP Morgan

Got it. Okay. Thank you so much and congrats again, Brian.

Bryan Hill
CFO at Alkami

Thank you.

Operator

There are no further questions at this time. I'll now hand the call over to Alex Shipman for closing remarks.

Alex Shootman
CEO at Alkami

Okay. Thank you everyone for joining us today, to our investors for your questions and for following the company, to our clients for your continued partnership, and to our alchemists for outstanding work in the quarter. Have a great evening and thank you very much.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Alkami Technology Q1 2025
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