Alkami Technology Q1 2026 Earnings Call Transcript

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Provided by Quartr
April 29, 2026

Key Takeaways

  • Positive Sentiment: Strong Q1 results: Alkami reported 29% revenue growth to $126.1M, adjusted EBITDA of $22.3M (17.7% margin) above expectations, ARR of $494M and a $71M ARR backlog from 40 clients expected to go live over the next 12 months.
  • Positive Sentiment: MANTL acquisition and DSSP are driving higher-value wins: MANTL contributed ~14 percentage points of Q1 growth, standalone MANTL added 61 clients since early 2025, and DSSP clients rose from 11 to 48 with DSSP new logos showing ~30% uplift in ARR versus historic online banking deals.
  • Positive Sentiment: Confident outlook and margin expansion: Management reiterated Q2 revenue of $128–129M and full-year revenue of $527.1–530.9M, expects ~65% non-GAAP gross margin and adjusted EBITDA margin north of 19% in H2, and continues to target achieving a "Rule of 45" by 2030.
  • Negative Sentiment: Near-term headwinds and corporate costs: a meaningful decline in termination fee revenue will reduce reported growth this year, database technology costs are higher temporarily, and $2.8M of recent shareholder-matters defense expenses may persist though management expects them to moderate.
  • Neutral Sentiment: AI initiatives and Alkami Engage: The company demonstrated AI prototypes and launched Alkami Engage to capture real-time telemetry, but commercialization, pricing and material contribution to the long‑term model remain under evaluation.
AI Generated. May Contain Errors.
Earnings Conference Call
Alkami Technology Q1 2026
00:00 / 00:00

Transcript Sections

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Operator

Hello, and welcome to Alkami's first quarter 2026 financial results conference call. My name is John, and I will be your operator for today's call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press Star zero for the operator. I would now like to turn the conference call over to Steve Calk. Steve, you may begin.

Steve Calk
Head of Investor Relations at Alkami

Thank you, John. With me on today's call are Alex Shootman, Chief Executive Officer, and Cassandra Hudson, Chief Financial Officer. During today's call, we may make forward-looking statements about guidance and other matters regarding our future performance. These statements are based on management's current views and expectations and are subject to various risks and uncertainties. Our actual results may be materially different. For a summary of risk factors associated with our forward-looking statements, please refer to today's press release and the sections in our latest 10-K entitled Risk Factors and Forward-looking Statements. Statements made during the call are being made as of today. We undertake no obligation to update or revise these statements. Unless otherwise stated, financial measures discussed in this call will be on a non-GAAP basis. We believe these measures are useful to investors in understanding our financial results.

Steve Calk
Head of Investor Relations at Alkami

A reconciliation of the comparable GAAP financial measures can be found in our earnings press release and in our filings with the SEC. Now I'd like to turn the call over to Alex.

Alex Shootman
CEO at Alkami

Good afternoon, and thank you for joining us. We delivered a strong first quarter, achieving 29% revenue growth and over $22 million in adjusted EBITDA, both above expectations. We closed six new digital banking relationships, including two banks and three Digital Sales & Service Platform clients. In addition, we introduced our first integrated capabilities for the Digital Sales & Service Platform and a new product called Alkami Engage. Our first quarter performance continues to demonstrate Alkami has the potential for long-term durable growth and increased operating leverage. Alkami operates an attractive and predictable business model in a resilient, large and growing market. Our target market is over 2,000 regional banks and credit unions that rely on legacy infrastructure incapable of providing a modern digital experience. A portion of growth comes from displacing these systems.

Alex Shootman
CEO at Alkami

Given industry-standard five to 7-year contracts combined with stable win rates, we maintain good visibility into the long-term ARR growth that comes from new logo additions. Once on the Alkami platform, our investments in service and reliability, the mission-critical nature of our platform and high switching cost drive gross retention rates eight to 10 points above typical SaaS companies. High retention rates, combined with clients adding users and adopting more of the platform, results in reliable long-term client growth. Every five years, our clients grow by more than 100% of their original platform investment, with our 2021 through 2023 cohorts spending above 2x their landing ARR and clients 2016 and older spending close to 4x their landing ARR. Additive to the land retain and growth algorithm for Alkami is our entry into the bank market.

Alex Shootman
CEO at Alkami

Four years ago, we launched an effort to use commercial banking capabilities built for large, complex credit unions to pursue market leadership serving community banks. At that time, banks represented 2% of our live online banking clients, and today banks are at 13%. Over this four-year period, we tripled revenue, expanded gross margin by over 700 basis points, and improved operating leverage by more than 2,000 basis points. Through different macroeconomic distractions and volatility in the financial services sector, Alkami has continued to deliver by adding new clients, keeping our clients, expanding our product offering and increasing margins. Client decision cycles create a unique characteristic for Alkami. Our online banking platform is in a replacement market with prospects on legacy platforms under long-term contracts. There are usually fewer than 300 potential clients in our target market that renew contracts in any given year.

Alex Shootman
CEO at Alkami

Within this group, a portion choose not to convert, given the effort and perceived risk. Among those who make a change, we consistently win 30-40 new clients per year. For example, the 6 new logos in Q1 is slightly above our historical Q1 average. New logo growth is consistent and will not spike unless customers choose to exit contracts early or see enough value to overcome conversion resistance. This consistency is a strength, but it also means the next phase of our growth will be driven by expanding the value we deliver within each financial institution. Increasing the value of the platform not only drives expansion, it also improves conversion, and this is why the MANTL acquisition was so strategic. The MANTL acquisition adds platform functionality to encourage conversions and expands our install base.

Alex Shootman
CEO at Alkami

Standalone MANTL new logo creation has been outstanding, with 61 clients added since the beginning of 2025. These are now Alkami clients we can target to cross-sell online banking. In addition to the new logos, at our recent customer conference we demonstrated differentiated capabilities that materially improve how financial institutions acquire and engage customers. Two weeks ago, we concluded Co:lab, our annual client conference. The conference continues to set records with over 600 customer attendees, of which 83 were prospects. Since the MANTL acquisition, we've been building deep technical connections between our online banking and origination platforms to deliver an integrated front end that enables our market to compete with mega banks and neo banks like Chase and Chime. We built this capability with seven clients as design partners, six of which have the code in production. We demonstrated live product with real results at Co:lab.

Alex Shootman
CEO at Alkami

In a side-by-side comparison against two leading mega banks and a digital-first fintech, we showed a complete customer journey from account opening through digital engagement. Using a live environment and real workflows, Alkami's Digital Sales & Service Platform, or DSSP, completed that experience in under two minutes compared to an industry benchmark of five minutes and to three contestants in the 3-4 minute range. DSSP has continued to perform for Alkami. Since the beginning of 2025, we've gone from 11 to 48 clients who have all 3 products that make up DSSP. Over half of all new logos since Q2 of last year have been DSSP. DSSP new logos see a 30% uplift in ARR versus our historic online banking offering. Our intent with DSSP is to increase the number of clients willing to convert, expanding our opportunity within the existing market constraints.

Alex Shootman
CEO at Alkami

We have not reflected this in our long-term model, and our outlook under current new logo assumptions continues to support attractive long-term growth for Alkami. Last quarter, we introduced a 2030 framework, and that model assumes 40% of ARR growth coming from new logo additions at numbers consistent with our historical average and 60% of ARR growth from expanding within our client base. Alkami is evolving from a vertical application in a replacement market to a vertical platform provider that drives growth for bank and credit unions, and this transaction is occurring because the market demands it. Historically, community banking technology was defined by core providers that controlled the system of record. Everything else, digital banking, onboarding, payments, was built around that core. For years, that architecture defined how financial institutions operated. That reality has changed. Digital has become the primary way customers experience their financial institutions.

Alex Shootman
CEO at Alkami

Our clients need technology not just to process transactions, but to sell and service financial products in a digital-first world. This is the role of the Digital Sales & Service Platform, a platform that provides a long tail of growth opportunities for Alkami and positions us to become the new primary technology partner for community financial institutions. In this market, leadership will not be defined by the number of institutions served, but by generating the most economic value from each financial institution on the platform. The investments we've made to integrate our acquisitions creates the functional capabilities of Alkami's DSSP that are winning in the market. However, the platform investments we've made create compounding value for Alkami and our clients. Alkami is a single instance, multi-tenant, industry specialized platform, and this gives us the opportunity to provide AI capabilities our clients are requesting.

Alex Shootman
CEO at Alkami

For details on Alkami's AI perspective, please review my prepared comments from our last earnings call. In the February 25th call, I spent over 50% of my time on AI and Alkami. Since that earnings call, I've had 39 face-to-face customer meetings, and AI was discussed in every one of them. Not one client mentioned building their own digital banking or origination platform, but every client wanted to talk about AI as an enabler for personalization, underwriting, fraud management, customer service, analytics, offer management, and more. With over 23 million account holders on our platform, we have a unique foundation to apply AI capabilities at scale. At our customer conference, we demonstrated working AI prototypes built on this platform.

Alex Shootman
CEO at Alkami

These included capabilities that allow clients to tailor Alkami to their needs through prompt-driven development, use natural language to query platform data and better understand their account holders and operations, and deploy co-pilots that support both banker workflows and account holder experiences. These capabilities are powered by our platform, including our data infrastructure and telemetry from Alkami Engage, a new product which captures real-time user interaction data across the customer journey. Importantly, these are not conceptual demonstrations. We're actively working with a small group of clients to test these capabilities and determine the appropriate commercial models. Given our platform foundation, bringing these capabilities to market is less a technical challenge and more a question of how to package and price them effectively for our clients. In closing, we are pleased with the integrated product capabilities we built into Alkami's Digital Sales & Service Platform.

Alex Shootman
CEO at Alkami

The market reaction has been positive. DSSP provides a foundation we can continue to build upon to differentiate Alkami. We are evolving Alkami from a system of record to a system of action, delivering measurable outcomes for our clients and increasing the value we create within each financial institution relationship. I'm proud of our business results this quarter and grateful to more than 1,200 Alkamists who continue to get it done and do it right. I'll now hand the call to Cassandra to discuss our financial results.

Cassandra Hudson
CFO at Alkami

Thank you, Alex. Our first quarter results exceeded our expectations, highlighted by strong adjusted EBITDA performance that underscores the durability of our model and the progress we're making in driving operating leverage. We continue to execute with discipline, delivering consistent growth while expanding profitability and investing strategically to support long-term value creation. Let me start with our updated outlook. For the second quarter of 2026, we expect revenue of $128 million-$129 million, representing growth of 14.2%-15.1%. As a reminder, our second quarter revenue outlook includes the impact of a sizable termination fee recognized in the second quarter of 2025, which represents an approximate three percentage point headwind to year-over-year growth in the quarter.

Cassandra Hudson
CFO at Alkami

In the second quarter, we also expect adjusted EBITDA of $17.9 million-$18.7 million or 14.3% margin at the midpoint. This outlook incorporates the impact of our annual user conference, which is reflected in our normal seasonal expense pattern. For the full year, we expect revenue of $527.1 million-$530.9 million, representing growth of 18.8%-19.7% and adjusted EBITDA of $94.9 million-$97.9 million or 18.2% margin at the midpoint, reflecting continued operating leverage as we scale the business. Our revenue outlook reflects several underlying assumptions consistent with what we shared last quarter. We expect continued cross-sell momentum across the platform, along with a steady cadence of ARR launches throughout the year.

Cassandra Hudson
CFO at Alkami

We also expect high single-digit ARPU growth, reflecting strong expansion within the base, partially offset by a modest moderation in user growth among existing clients. We expect a meaningful decline in termination fee revenue in 2026, which will reduce reported growth by a few percentage points. This headwind is partially offset by the contribution from MANTL. We expect growth to moderately accelerate in the third quarter due to a more favorable year-over-year comparison. Turning to profitability, we expect a full year non-GAAP gross margin of approximately 65%. In the back half of 2026, we expect adjusted EBITDA margin to be north of 19%, weighted toward the fourth quarter and in line with our typical seasonal pattern

Cassandra Hudson
CFO at Alkami

Overall, we expect approximately 500 basis points of margin expansion for the year, driven by operating leverage in the model, efficiencies from our offshore operations, and continued cost discipline while also funding targeted investments in AI that we believe will drive product innovation and long-term efficiency. Lastly, we expect stock-based compensation to be approximately 14% of revenue for the year. As we discussed last quarter, our long-term model framework reflects what we believe are achievable targets based on the strength of our business today and the visibility provided by our long-term contracts. We continue to expect to achieve Rule of 45 by 2030. From a growth perspective, we expect a gradual increase in banks new logo wins supported by our Digital Sales & Service Platform alongside continued leadership in credit unions, reflecting the replacement-driven nature of our market.

Cassandra Hudson
CFO at Alkami

We also expect consistent execution in our add-on sales efforts and volume growth from existing customers together driving ARPU expansion and contributing significantly to our long-term growth. As well as total dollar churn of approximately 2%-3% annually, with about half associated with our digital banking clients. Importantly, our long-term outlook does not assume incremental M&A. From a profitability standpoint, we expect non-GAAP gross margin approaching 70% over time as we improve execution on implementations and drive support efficiencies. Approximately 300 basis points of annual adjusted EBITDA margin expansion driven by scale and continued operational improvements, particularly across R&D and G&A, and stock-based compensation declining to approximately 10% of revenue. Turning to first quarter performance, revenue was $126.1 million, up 29% year-over-year. Subscription revenue grew 30% and represented 96% of our total revenue.

Cassandra Hudson
CFO at Alkami

As a reminder, we closed the MANTL acquisition on March 17th, 2025. This timing contributed approximately 14 percentage points of year-over-year growth to Q1 2026. Growth rates will become fully comparable beginning in the second quarter. We increased ARR by 22% and exited the quarter at $494 million. Importantly, we have approximately $71 million of ARR in backlog pending implementation, representing 40 new clients and roughly 1.4 million digital users. We expect the majority of this backlog to go live over the next 12 months. As Alex highlighted, we continue to see strong momentum with our Digital Sales & Service Platform. From a financial perspective, DSSP is important because it is driving higher quality revenue across several dimensions. Clients adopting multiple components of the platform tend to have higher initial contract values, longer contract durations, and stronger retention profiles over time.

Cassandra Hudson
CFO at Alkami

This is already contributing to ARPU expansion and ARR we're seeing across the business. Additionally, as we integrate MANTL and expand our platform capabilities, we are increasing our ability to land with a broader set of products and expand within the client over time. This reinforces our land and expand model and supports the long-term durability of our revenue. We exited the quarter with 307 clients and 23 million registered users, an increase of 2.5 million users or 12% year-over-year. Over the past 12 months, we implemented 35 clients supporting 1.2 million digital users, and existing clients increased their digital adoption by 1.5 million users. Our contracts provide strong visibility into attrition, typically several quarters in advance. Over the past three years, we have churned less than 1% of our digital banking ARR annually.

Cassandra Hudson
CFO at Alkami

For 2026, we currently expect to churn four digital banking clients, which again represents less than 1% of ARR. This speaks to the mission-critical nature of our platform and the strength of our long-term client relationships. Revenue per user increased to $21.46, up 9% year-over-year, driven primarily by MANTL's contribution, strong cross-sell execution, and increased user adoption among existing clients. Remaining performance obligations were approximately $1.7 billion or 3.5x live ARR, providing strong visibility into long-term revenue. First quarter non-GAAP gross margin was 64.4%, roughly flat year-over-year, driven by the higher database technology costs we discussed last quarter. We view these costs as temporary and expect them to decline by the end of 2026.

Cassandra Hudson
CFO at Alkami

First quarter operating expenses were $59.4 million or 47.1% of revenue, representing 530 basis points of year-over-year improvement realized across all areas of operating expense. Adjusted EBITDA was $22.3 million above the high end of our expectations, with an Adjusted EBITDA margin of 17.7% and expansion of approximately 540 basis points year-over-year. We ended the quarter with $77.6 million in cash and marketable securities. In the first quarter, our operating cash flow improved 15% year-over-year. Free cash flow was consistent with prior year, and we repaid the remaining $15 million of our revolving loan. Finally, today we announced that the board of directors has approved our inaugural stock repurchase program of up to $100 million.

Cassandra Hudson
CFO at Alkami

This is an important milestone that reflects our confidence in both our long-term growth and our robust cash flow generation capabilities. We continue to believe in a disciplined and balanced approach to capital allocation that enables us to grow through additional acquisitions, delever the balance sheet through debt reduction, and opportunistically repurchase shares to deliver increased value to our shareholders. In closing, our results this quarter reflect continued execution against our strategic priorities and the strength of our platform. We are scaling with discipline, balancing growth and profitability while investing in the capabilities that we believe will further differentiate Alkami over time. The visibility in our model and continued momentum across the business position us to drive sustained long-term value. With that, operator, please open the line for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Cris Kennedy from William Blair. Your line is now open.

Cris Kennedy
Cris Kennedy
Analyst at William Blair

Good afternoon. Thanks for taking the question. Cassandra, you have the grow over in the second quarter, but you also talked about accelerating growth in third quarter and fourth quarter. Can you just provide a little bit more clarity as to the confidence in accelerating growth?

Cassandra Hudson
CFO at Alkami

Sure. Yeah, you know, just to clarify, Cris, that growth acceleration will be in the third quarter in particular, and is really driven by a more favorable year-over-year comparison, just some timing dynamics that we experienced in 2025. As it relates to the headwind in the second quarter, that's really timing of termination fee revenue. You know, we do have that headwind in every quarter this year, but it is a little bit more pronounced in the second quarter in particular, which is why I called it out on the call.

Cris Kennedy
Cris Kennedy
Analyst at William Blair

Okay. Got it. Understood. Alex, you mentioned it, but any additional takeaways or observations from Co:lab when you were talking to your customers and kind of how they're viewing the current environment and AI? Thanks for taking the questions.

Alex Shootman
CEO at Alkami

First of all, Co:lab was an amazing event. You know, once again, we set record in terms of number of attendees. It was great to see 83 prospects, a good balance between credit union prospects and bank prospects. A couple comments. There was no let up in digital transformation. You know, this is a pretty big market. As I mentioned, over 2,000 credit union and bank customers that all have legacy technology. They're all smart. They all understand what they need to do. They are a little bit captive to these long-term contract dynamics that we talked about. Just continued demand in terms of demand for digital transformation. What was really exciting to see.

Alex Shootman
CEO at Alkami

For our market, and for those of you that don't bank with a regional bank or credit union, you may not really be able to appreciate this. For our market, what's been critical for them to compete with these large money center banks and fintechs is what we would call an integrated front end, a digital front door, whatever you might want to call it. It is the integration of digital banking and a deposit origination platform and a loan origination platform to be able to attract a customer, convert them into a customer, have them in digital banking, have them with a digital, you know, with additional products and all of that seamless, and so that the customer or prospect doesn't even know that they're in multiple different products.

Alex Shootman
CEO at Alkami

That has been the benchmark that these institutions have looked for, and that's what we showed from stage. I think what I was most pleased with is the audience reaction to real technology that we showed that will make a real difference for this market.

Cris Kennedy
Cris Kennedy
Analyst at William Blair

Understood. Thanks for taking the questions.

Operator

Your next question comes from the line of Aaron Kimson from Citizens. Please go ahead.

Aaron Kimson
Aaron Kimson
Analyst at Citizens

Great. Thanks for the questions. Alex, you spoke again today in your prepared remarks about more banks being open to separating online banking from their core provider. Can you talk about what's driving that willingness, whether it's increased acceptance that the standalone digital providers like Alkami have the superior solution for online banking, the maturity of your solution with MANTL, or a change in the ease of integrating a standalone digital provider solution into the core, or maybe something else I'm missing? Thanks.

Alex Shootman
CEO at Alkami

Thanks. Once again, let's talk about the difference between the bank market and the credit union market. In a previous earnings call, I've got the specific numbers, so I'm gonna give you the round numbers. I know we've got the specific numbers. In the credit union market, it's probably in the mid 40%, 45% of the customers that have an online banking application that is supplied to them from their core provider. In the bank market, it's been north of 75%. That's the part that we're beginning to see unwind. I actually talked to a prospect at CoLab who is going to pay off four years of their remaining digital banking contract to move to a different digital banking platform from their from their core.

Alex Shootman
CEO at Alkami

I asked them, I said, "This is one of the first times that I've ever heard this. Why are you doing this?" They said, "In our market, we have to compete with Wells Fargo and KeyBank, and we're at the point where our digital capabilities are insufficient, and if we don't make this change, it's going to impact the business of the bank." You're starting to see that demand push create these conversions. The flip side of that is the more customers that see somebody come onto a platform like Alkami successfully go through the conversion, successfully bring their customers on board, then they're willing to make the change. It's ultimately a decision of value versus risk.

Alex Shootman
CEO at Alkami

That's why the integration of the data marketing platform and the onboarding platform and digital banking is so critical because when a bank sees the outcome of speed to bringing on a new customer, reduced cost to bringing on a new customer, increased speed to cross-sell, they start to have the conviction to make the change.

Aaron Kimson
Aaron Kimson
Analyst at Citizens

That's really helpful. Thank you. The second one's a little bit more direct. You've incurred $2.8 million in shareholder matters related expense over the prior two quarters with $2.2 million in one Q. Can you provide any color on the nature of these expenses and if you anticipate them to be ongoing or settled for the near term after you added two new board members on March 31st? Thanks.

Cassandra Hudson
CFO at Alkami

Sure. Thanks for the question. You know, those costs, you know, are really defense related in nature. You know, we do expect to incur, you know, additional costs related to this item. You know, obviously it's difficult for us to predict how much they will be, though I don't think that we're gonna be scaling at $2.8 million every quarter from here on out. You know, I think so we saw a little bit of a higher cost in Q1, and I would expect those to moderate from here on out.

Aaron Kimson
Aaron Kimson
Analyst at Citizens

Awesome. Thanks, Cassandra.

Cassandra Hudson
CFO at Alkami

No problem.

Operator

Your next question comes from the line of Jacob Stephan from Lake Street Capital Markets. Your line is now open.

Jacob Stephan
Analyst at Lake Street Capital Markets

Hey, guys. Appreciate you taking the questions. Maybe just first kind of a note-keeping one here. Maybe give a deeper dive into the bank versus credit unions in the backlog.

Cassandra Hudson
CFO at Alkami

Let's see. I guess banks versus credit unions, it's pretty, I would say, evenly split, in terms of their size. You know, right now we have 13 banks in the backlog, and the rest would be credit unions.

Jacob Stephan
Analyst at Lake Street Capital Markets

Okay. Second one for me. I know you've kind of given some in-depth detail on user adds in the past. I'm wondering if you could kind of help us think through the adds in the last quarter and maybe over the last several quarters in terms of existing clients, how many of those were newly implemented customers, and just that kind of trend.

Cassandra Hudson
CFO at Alkami

I mean, in the past, you can kind of think of the trend as roughly half and half new versus existing. In Q1 in particular, just kind of flipping back to my script. We implemented 1.2 million digital users over the past 12 months and then 1.5 million related to existing clients. A little bit more weighted to existing clients over the past year here.

Jacob Stephan
Analyst at Lake Street Capital Markets

Okay. Very helpful. Thank you.

Operator

Your next question comes from the line of Jeff Van Rhee from Craig-Hallum Capital Group. Please go ahead.

Jeff Van Rhee
Jeff Van Rhee
Analyst at Craig-Hallum Capital Group

Hey, this is Daniel on for Jeff Van Rhee. Just on MANTL and the pace of logo adds there, the 14 this quarter, maybe if you would want to compare that to previous quarters or expectations, just how MANTL is tracking relative to expectations.

Cassandra Hudson
CFO at Alkami

I mean, I think they continue to track very well, right? You know, with all of our products there is a bit of a cyclical nature to the sales cycle. You know, for us, Q one, you know, tends to be a bit of a lighter quarter and Q four, you know, tends to be our strongest quarter. You know, I think we continued to see, you know, really good performance, in Q one for MANTL coming off of a really record 2025.

Alex Shootman
CEO at Alkami

I would just point back to, you know, the reason why we're pleased is you go back to beginning of 2025 and our DSSP clients, so that's clients that have acquired MANTL have gone from 11 to 48. In the same period of time, standalone MANTL new logo clients of 61. You know, you figure that's a 5-quarter period of time. You know, I'm the ever-optimistic CEO, but I consider that to be outstanding performance to, you know, to make an acquisition like that. Just take a step back. The acquisition closed in Q1, right?

Alex Shootman
CEO at Alkami

We needed to integrate the two companies, and in that period of time delivered that kind of both new logo and cross-sell performance at the same time as integrating the technologies together into one experience that unites the front end of digital banking and origination. I'm frankly just super proud of the team for what they've done.

Jeff Van Rhee
Jeff Van Rhee
Analyst at Craig-Hallum Capital Group

Yeah. Great. Alex, maybe if you could just talk a little bit. I liked your line about Alkami evolving from being a system of record to a system of action. If you could just expand a little bit more on what that means to you and in particular any examples you'd have of that.

Alex Shootman
CEO at Alkami

Yeah. You know, what our customers are asking for is, historically the digital part of the financial institution was somewhat passive, right? It's relying on the account holder to know what they want to do and then come in and take action. As we all understand how systems have changed and how we interact with systems, now what our institutions are asking for is, "You have all of this data. You've got transactional data, you've got telemetry data, you've got core transactional data.

Alex Shootman
CEO at Alkami

I want you to start predicting things that we want the account holder to do, and then I want you to notify the account holder and ask them to do that. That's what I mean in terms of making a shift from a system of record to using the data and the analytics capabilities that we have and the predictive capabilities that we have. Now I want you to tell me to take an action or tell our account holders to take an action. Right? I notice that I know that.

Alex Shootman
CEO at Alkami

To give you an example: "I know that at this time of the month, every single month, your balance starts to drop, so I'm going to reach out to you and recommend an action for you to take so that you don't get into a bad financial situation." That's the kind of thing that I'm talking about when I say move from a system of record to a system of action.

Jeff Van Rhee
Jeff Van Rhee
Analyst at Craig-Hallum Capital Group

That's helpful. Thanks, Alex.

Operator

Your next question comes from the line of Andrew Smith from KeyBanc Capital Markets. Your line is now open.

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Hey, Alex. Hey, Cassandra. Thanks for taking the question. Apologies, I hopped on a little bit late here. The sales force, the shift to a separate bank and credit union, sales forces. How has that evolved? Has that been effective in terms of building the pipeline, typically on the bank side? I hear you on the backlog. I'm just curious how that has progressed. Thanks so much.

Alex Shootman
CEO at Alkami

Yeah. Thanks for the question. Our pipeline, you know, remains balanced. It's pretty evenly split between banks and credit unions. For us, the transition has been effective. It allows us more specialization in the bank market, and we remain happy that we did it.

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Got it. That's helpful. You know, obviously everyone's thinking through sort of, you know, more efficient organizational structure when we think about AI development, et cetera. I know you're probably pretty heavy users of this internally, but is there any like structural changes or process changes that need to be made as a result of just increases in model productivity, things like that to consider? Is it more kind of just product velocity output increasing on that side of things? Thank you.

Alex Shootman
CEO at Alkami

I mean, you could imagine that we're using every single model provider in all parts of the organization right now. We're not yet at the point where we're ready to come to our investors and say, "This is the benchmark productivity that we're going to, you know, run after." I think the biggest thing that we're seeing in terms of change is the front end of the software development life cycle. If you think about DevOps did a lot for us in the back end of the software development-

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Mm-hmm

Alex Shootman
CEO at Alkami

... life cycle, in terms of how we would, you know, test code, how we would release code, how we would support code. That's where a lot of that transformation occurred. A lot of the transformation that we're seeing right now is just the speed in the front end of the software development life cycle and how quickly we go from what used to be something that was in a PRD that is no longer in a document at all and is now a fully functional prototype that we're reviewing with a client instead of having conversations through PowerPoint or through documents. That's where I see a lot of, frankly, a lot of promise for the organization.

Alex Shootman
CEO at Alkami

Within the support organizations, you know, we've fully wired the company from a data perspective for access for all of the support organizations to try to speed up the time at which it takes to respond to customers, and then ultimately the cost that it takes to respond to customers. I'm probably like every other software executive right now where we're watching our companies transform, you know, in months what we used to see happen in years. It's, it's actually a pretty fun and amazing to be in a software company.

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Yeah. Makes sense. A lot of progress in a short period of time. It's great to hear. If I could just squeeze one more modeling question in. I think I heard the acceleration in the back half revenue perspective, because that makes sense as we move past the term fees, et cetera. Is it possible to have a 3Q, 4Q breakout of the cadence to expect and then for both revenue and EBITDA? I just wanna make sure, you know, we have that right and we're not caught off guard, if that's possible. If not, that's fine, but thought I'd air that out. Thanks so much.

Cassandra Hudson
CFO at Alkami

No, no worries. Couple points, and I'll kind of talk about top line and EBITDA separately. On revenue, the acceleration is very specific to Q3. And it is due to a more favorable year-over-year comparison. There are some timing elements in the prior year that's driving that acceleration. You know, if you just kind of think about the nature of our model, right? It's, you know, it's very predictable. We have a steady amount of ARR launches happening this year. Very consistent dynamics from existing customer and ARPU growth. Just given that, you know, I think that kind of, you know, you can calculate what that implies from a revenue perspective for our model.

Alex Shootman
CEO at Alkami

Can I just say one thing, Andrew?

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Yep.

Alex Shootman
CEO at Alkami

'Cause you've followed us for a while. I, and I'm not trying to be coy, but I would just really encourage you to go back and look at the post Q2 commentary from last year, where we were very specific and said, we actually took down Q3 last year because we had a termination fee that accelerated into Q2. That's exactly.

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Right

Alex Shootman
CEO at Alkami

what Cassandra's talking about, right? That's the exact-.

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Yep.

Alex Shootman
CEO at Alkami

It's no more complicated than that.

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Yep. No, it makes sense. Just to wrap it up.

Cassandra Hudson
CFO at Alkami

Next

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

EBITDA? EBITDA largely tracks.

Cassandra Hudson
CFO at Alkami

For adjusted EBITDA, we typically see adjusted EBITDA builds each quarter throughout the year. Q4 typically is the highest, both in, obviously, in terms of dollars, but more importantly the EBITDA margin. That trend we expect to continue.

Alex Shootman
CEO at Alkami

We gotta give you.

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Got it. Yep.

Alex Shootman
CEO at Alkami

props for trying to get Cassandra to go ahead and give you a Q3 guide.

Andrew Smith
Andrew Smith
Analyst at KeyBanc Capital Markets

Exactly. You know I'm always pushing the envelope, Alex. I appreciate it. Thanks for all the comments, guys. Helpful.

Cassandra Hudson
CFO at Alkami

No problem.

Operator

Your next question comes from the line of Ella Smith from JPMorgan. Please go ahead.

Ella Smith
Ella Smith
Analyst at J.P. Morgan

Good evening. Thank you for taking my question. First maybe for Alex. As banks start to grow as a, as your total customer mix and backlog. Are there any unique challenges of serving banks or differences you observe from serving credit unions?

Alex Shootman
CEO at Alkami

For sure. It's really, I would call it, let's call it product technology and skills. From a skills perspective, what we've had to bring into the organization are people that understand how to do commercial data conversion. Converting a, you know, a complex business account and the data in the complex business account into Alkami is very different than converting the data from a retail account. That can be, you know, account data, payment data. All of that data set is very different, bank versus retail. From a product perspective, I think what we've mentioned over several calls is we've got a 3-phase treasury management build-out.

Alex Shootman
CEO at Alkami

The first phase of our treasury management build-out was to put ourselves in a position where we could effectively move a bank that was on a legacy core provider's platform into Alkami. That's the work that we've been doing over the last 12 months. I think we you know, we largely finish up that work at the end of, at the end of this quarter. There's capability build-out that we have to do. The cores themselves, you know, bank cores operate more from a batch perspective. Credit unions cores operate more from a real-time perspective. The core integration themselves and the way that we have to have Alkami, which is a data-hungry application. It's data-hungry because we wanna create a great user experience.

Alex Shootman
CEO at Alkami

You create a great user experience by having all the information in front of the user. We've had to do some things with the way that Alkami interacts with the bank cores to make sure that the clients get good performance for their customers. Three big differences. The skills that we have to have in the organization, the application functionality that we have to create, and then the technical integration to the cores themselves.

Ella Smith
Ella Smith
Analyst at J.P. Morgan

Perfect, Alex. That makes a lot of sense. For Cassandra, are there any unit economics considerations that we should be aware of if Alkami signs a DSSP client versus a regular new logo digital banking client? Specifically, what are the implications to revenue ARR and profitability that we should consider?

Cassandra Hudson
CFO at Alkami

Well, I mean, one of the big benefits of DSSP is really around, you know, obviously we're selling all three products at once, and we typically see about a 30% higher ARPU on our DSSP deals as compared to a traditional new logo. That would be 1. You know, that lends itself naturally to higher ARR, you know, especially over time as these banks and credit unions grow with their user base. You know, very, very profitable customers for us. I would say consistent unit economics from a implementation cost perspective. You know, we have to implement all three products and, you know, we kind of do that over the first 12-month term. Otherwise, I would say the dynamics there are relatively consistent.

Alex Shootman
CEO at Alkami

The part that is untested but we have, you know, optimism about, what we've delivered so far is just the first phase of functionality of the Digital Sales & Service Platform, and that's that, you know, those couple of use cases I shared. We're not gonna stop building. What I get excited about is the opportunity to build new products that we have an opportunity to charge for, assuming that there's value in them, to bring to the clients. From my perspective, those would go into the Digital Sales & Service Platform at a, you know, a lower cost of sale in terms of what the customer is buying. Remember, what we just shared is 11 to 48 customers in five quarters.

Alex Shootman
CEO at Alkami

There's not yet a long track record where we're able to say, "This is the change in the unit economics.

Ella Smith
Ella Smith
Analyst at J.P. Morgan

Great. Makes a lot of sense. Thank you, Alex and Cassandra.

Operator

Your next question comes from the line of Saket Kalia from Barclays. Please go ahead.

Saket Kalia
Saket Kalia
Analyst at Barclays

Okay, great. Hey, thanks guys for taking my questions. Alex, maybe for you, just to piggyback off that last question on DSSP a little bit. You know, clearly that tool, as you folks just talked about, adds a lot more value at landing. Maybe that's a little bit of a longer sales cycle. I mean, you talked about the 11-48. I guess as you look back, how is that sort of performing versus what you expected? As you think about that sales cycle, is that about in line with what you expected or is it longer or shorter? Curious about how it's sort of progressing so far across that still relatively small sample size.

Alex Shootman
CEO at Alkami

I gotta tell you, completing an acquisition and then within a one year having that kind of cross-sell, that blew me away in terms of expectations. I'm pleasantly surprised. We don't have the data yet, but I actually think... If you think about what we're showing our client in terms of the experience that they have bringing on a customer, you get two kind of things folks are looking for. Can I attract a new customer, and can I sell more products? Having this integrated front end, when people see it, and they know how hard they've been trying to deliver it for the last 20 years across a set of 10 different technologies, my expectation is that the sales cycle's not gonna be any longer. I don't wanna predict anything.

Alex Shootman
CEO at Alkami

To me, I would hope it's shorter, but it's still governed by the market dynamics that we talked about, right. This is the market dynamics or the long-term contract. That governs the sales cycle more than anything else, really.

Saket Kalia
Saket Kalia
Analyst at Barclays

Got it. That makes a ton of sense. Cassandra, maybe for you.

Alex Shootman
CEO at Alkami

Yeah, let me just-

Saket Kalia
Saket Kalia
Analyst at Barclays

I'm curious. Oh, sorry, please. I'm sorry.

Alex Shootman
CEO at Alkami

Yeah. Sorry for talking over you. We don't have this in our model. Remember, the most important thing for us is not, can we win against a competitor? The most important thing for us is can we increase the number of people that decide to convert off their legacy technology? This is not included in our model at all. What I'm hoping is that DSSP creates enough value so that some of those folks that didn't want to go through the conversion effort decide to go through the conversion effort, and we unlock more opportunities within the market constraint that we have.

Saket Kalia
Saket Kalia
Analyst at Barclays

Got it. Very clear. Thanks for that, Alex, by the way. Cassandra, maybe for my follow-up for you, I'm and it's a little bit of a broader question. I'm curious if there's anything that we should keep in mind this year from just a renewal perspective. You know, over the years, we've just been growing the customer base, and of course, those customers are gonna renew. I mean, is there anything that we should keep in mind this year just around, you know, potential tailwinds to ARPU or gross margins or anything like that as you think about that renewal pool sort of steadily growing over time?

Cassandra Hudson
CFO at Alkami

thanks for the question, Saket. I, you know, what I would point to is certainly there's gross margin benefit as we achieve higher levels of scale, and, you know, more and more of our customers have been on the platform for quite some time now. That does lend itself to higher gross margin. You know, upon renewal, we typically see customers increase their total contract value with us. They might buy additional product, and, you know, obviously continue to grow their user bases. Those benefit us, and we see that in increased ARPU as well as, you know, our NRR trends. I guess those would be kind of the three areas I would point to in terms of the renewal impact.

Cassandra Hudson
CFO at Alkami

You know, we don't have any real big concentrations in any one year where we have an outsized number of renewals. It's pretty evenly spread, just given how long our business has been humming here.

Saket Kalia
Saket Kalia
Analyst at Barclays

Got it. Very helpful. Thanks, guys.

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 for taking the questions. I guess to start on the Alkami Code Studio launch. Curious, I realize it's incredibly early, but curious, as to sort of initial customer and prospect reactions to that. Any indications as to how you might charge for that going forward would be helpful. Thank you.

Alex Shootman
CEO at Alkami

Yeah. Let me make sure that I've got some clarity. The product that we announced is Alkami Engage, and that's the product that is collecting the account holder telemetry information. The reference to Code Studio, if you look at my prepared remarks, what I shared was that we showed a prototype technology demonstration. That is not a product that we have decided to release yet, and it's for all the reasons that you framed. We had it in our innovation studio. People loved working with it. The two things that we're trying to work out really with any of these AI products are the more the commercial terms than necessarily the, you know, the technical terms. It's do we price it simply and then take the cost risk?

Alex Shootman
CEO at Alkami

I'm pretty sure if Cassandra and I showed up and said tokens are our profit guide, y'all wouldn't give us a pass. It's do we price simply and then take the cost risk, or do we introduce a usage metric that's not a usage metric that the client has any history with, and so it's hard for them to model? You know, I actually mentioned four different prototypes that we showed. You talked about Code Studio. That was just one of the four. That's what we're in deep discovery with our customers right now. We have a handful that are using each one of the prototypes to try to understand what the most effective commercial terms are for the, for the product.

Alex Shootman
CEO at Alkami

Given the platform that we have, The complication for us is not really, I don't wanna minimize how hard it is to build a new product, but it's not really can we build AI capabilities? It's really how do we monetize these AI capabilities in a way that it's easy for the customer to buy and it's safe for the company from a profitability perspective.

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

Yeah. No, that's incredibly helpful, Alex. I think that makes a lot of sense, especially given what's happened to token costs. Just to follow up on that, I'd be curious how that impacts your. And I realize it's maybe a bit difficult now, but how does that impact this launch and some of the beta testing you're doing impact your sort of three to 5-year view of the platform? Do you see Alkami becoming more customizable since the cost and accessibility of development is ultimately going to be coming down and, you know, you're gonna be adding new features more quickly, using third parties, first party, et cetera, beyond what you currently have in DSSP?

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

Is that sort of the goal in the roadmap, or am I missing the mark and there's something else to read into there? Thanks.

Alex Shootman
CEO at Alkami

Look, I don't mean to come across as snarky when I say this. That's not my intent. Like, all of our holy grail is to get more revenue and have it cost us less to deliver it. That's what we're really looking at all the time. We're not yet ready to change the long-term model that Cassandra's talked about. You know, Cassandra had talked about a long-term model that guides the Rule of 45. You know, if and when we have enough evidence within our operations, either in terms of revenue lift or in terms of cost efficiency to change that model, then we'll announce that we're changing the model, and we'll give you the reasons why we're changing the model. We don't have enough evidence yet to change that longer term model.

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

Great. Thank you very much.

Operator

That concludes the Q&A portion of the call. Thank you for joining us today. You may now disconnect.

Analysts
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