Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alkami Technology Inc (ALKT, Financial) reported a 25% year-over-year revenue growth, reaching $82.2 million for Q2 2024.
- The company achieved $4.6 million in adjusted EBITDA, exceeding the high end of their expectations.
- Alkami Technology Inc (ALKT) was the first digital banking solution company to be certified by J.D. Power for providing an outstanding mobile banking platform experience.
- The company signed eight new digital banking clients, including four credit unions and four banks, indicating strong market demand.
- Operational improvements, such as the conversion of microservices to Linux and deployment to Kubernetes, have reduced costs and improved platform performance.
Negative Points
- Despite strong performance, Alkami Technology Inc (ALKT) remains seventh in aided awareness in the bank market, indicating room for improvement in market penetration.
- The company faces challenges in achieving product market fit for specific complex needs of bank customers.
- There is a potential risk of client attrition due to market consolidation, although the company has not experienced significant churn recently.
- The implementation backlog includes 39 new clients, which could strain resources and delay onboarding processes.
- Gross margin improvements, while positive, are still short of the long-term target of 65%, indicating ongoing cost management challenges.
Q & A Highlights
Q: Alex, you alluded to it when you Hock, when you think about the next phase of growth for Alchemy, can you talk about some of the key drivers that you're focused, Dan?
A: Yes, most of all, if I go back to my script, when I was reflecting on is the factors that continue to reinforce my confidence in the 2026 targets that Brian and I sent out. So most of my commentary, I'm not trying to be argumentative wasn't really about a next phase of growth. What I continue to see, though, in the market and I talked about the demand drivers phone is that we've got underlying seat growth in the population in general we've got demographic changes that are driving the need for and a digitization in almost any aspect of how a consumer deals with their banks. And so Chris, I'm happy to go little bit deeper, but we've got a lot of demand tailwinds that Alchemy can tap into long term.
Q: And then just a quick follow up and you talked about it's better leveraging the API.s. Can you just talk about the progress on that journey?
A: Yes, thanks of the. There's two ways that our customers and our partners access the alchemy application today, they can access it through an API or they can access it through through an SDK. on the feedback that we've gotten from our customers is that they want to be able to access more parts of the platform so that they can it either get different pieces of information out of it out of the platform or put other pieces of information back into the platform. And so that's what we're going through from an APR redesign standpoint is how do we how do we allow other pieces of information to come out of the platform so that our customers can do unique things for their customers or members and members, and then how do we allow them to put information into them into the platform and then ultimately turning it into an API first platform so that they no longer have to use an SDK. if they want to integrate a third party capability into the platform. What this will all result from is lower effort inside of alchemy too Connect partner software, third party software into the platform. And it will enable more stickiness of the platform because there will be much more information in and out of the platform in service to the service to the customer.
Q: I wanted to start, Brian or Alex with the comment around the add-on sales momentum. Great to hear the positive momentum there. Could you maybe unpack that a little bit in terms of which areas are you seeing the most traction, which might be lagging a little bit? Just any sort of color on where the momentum lies within the add-on products?
A: There's four areas where we're seeing some significant progress. One is what we refer to as data insights and marketing, which in large part that's our segment acquisition. So not just from an add-on sales perspective, but also from a new logo or new client win perspective, we're seeing a lot of adoption within segment. In fact, today approximately 28% to 30% of our total installed base. So the 254 live digital banking clients have adopted segment by which we think is pretty fantastic. And then you move into fraud protection, which again, is principally driven by another one of our acquisitions was eight, which is ACH alert and ACH alert has been sold on four of the five bank bills that we've sold this year in ACH alert also represents about 30% adoption in our overall live digital banking clients and then you move into customer service and financial wellness areas. And net in those two areas have been followed by money movement. So it's just the fact that today our clients average 13 products and we offer 33. So depending on what the interested in from a business operation and strategy point of view, really drives what products are adopted But definitely within the marketing data insights and fraud area, we're seeing quite a bit of traction.
Q: Just for a quick follow up, maybe, Brian, on the model, just wanted to get a better sense of the expectations for the back half? And then what's really sustainable for your fiscal 26 target in terms of user growth and our improved should we use the recent trajectories as maybe a guide to what you should expect for the next several quarters? Is that a good sort of framework about the model?
A: No, no, it is. I wouldn't break away from what we've been saying for the last several years on how we achieve 25% revenue growth and the 5% to 7% percentage points come from RPU expansion. Rpu expansion is driven by both the fact that new sales cohorts are coming on at a much higher RPU. Part of that's driven by some more banks included in that mix, but also credit unions are coming in with more average products and a much higher RPU. So so we think that's a good driver and we have good visibility and what that can do for us in the future. And then secondly, on RPU expansion comes from the cross-sell, what we're seeing, and quite honestly, I am very excited about what we're seeing come through our client sales organization, whether it's at the time of renewal or if it's midstream in an MSA, we're seeing nice adoption of our product portfolio. And as I mentioned that's 46% total contract value for our year to date, 2024 new sales, so 5% to 7% from RPU expansion and the balance 18% to 20% I will come from on user growth. Now within any quarter, it could be a percentage point or two different or variability and user growth versus RPU expansion. But we don't see any reason to break away from the revenue calculus that we've been providing.
Q: The first is Alex. I'm reading this press release about the millennials versus the Gen X and baby boomers and others. I mean, it's super interesting. Just I'd love you to expand a little bit on why it is the millennials are so up for grabs and why they're expanding their number of financial providers just as they as they get more wealth, they need more providers. There's something more to it. And then my second question is I would love to hear your thoughts on that, how you guys feel about doing M&A and sort of what you're doing parameters would be?
A: Yes, Pat, thanks for the question. First, on the first question, we set out to do that study in partnership with the Center for generational kinetics because of the facts that you and I both know, which is this huge wealth shift from the baby boomer generation to the millennial generation. And we we set out to do this study as kind of an advisory to our customers. And many of what you much of what you read in it is what we discovered for first of all. And the second half of the path of the millennials use a very large bank. But that means half of millennials are up for grabs to us to change to a regional and community financial institution to be their primary institution on and that we learn
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
