Hello, everyone. Alexei Gogolev here from J.P. Morgan Software team. Today I'm excited to welcome Alkami management with us. We have Alex Shootman and Bryan Hill, CFO of the company. Alex, thank you for being with us. My first question, it's obviously very difficult to dislodge a lot of concerns that are embedded in today's regional banking crisis. Maybe could you elaborate how you think Alkami is insulated from some of this current volatility that we're seeing? Yeah. Thanks, Alexei. A couple comments. One directly from customers' mouths, and then one will be related to data from our own system. In the last couple weeks I've been in the offices of 14 different CEOs of our customers or prospects, and they're all managing through an interest rate change environment, but they're really not managing through a crisis like a First Republic Bank or a Silicon Valley Bank. They've just got a different business model. They were all prepared for questions from their customers or members. After talking to 14 different CEOs, only two had questions. One was a credit union in Wisconsin. They had a teenager who had $5,000 in an account and wanted to know if his account was gonna be okay. They had one business account that was managing very high deposits because of their payroll, and they just needed to help them manage the high deposits. I've had one customer tell me, "Alex, this was not a bank run. This was a run on a business model." Our customers are not feeling any concern about their capital or the health of their business. They're mostly managing through an interest rate change environment. If you look at the data within our systems, you know, we've got 15 million users, which is a pretty decent amount of the population. 0.91% of the accounts that are in Alkami, customers were over a depository limit. I would say for our customers, it's been a non-issue. Perfect. You've mentioned 15.1 million digital users that your customers are servicing. How does that compare to the total addressable market that you see in the U.S.? Bryan, I'll let you talk to. Yeah. Sure. The way that we look at the addressable market is we focus on the financial institutions that are below the mega banks. How we define mega banks, it's really the top 10 or so financial institutions in the U.S. with assets greater than $450 billion. The non-mega bank financial institutions, there's approximately 9,000-9,500 of those. At the time of our IPO, which was two years ago, represented 185 million digital users. That's not unique people. That's every registered user within those financial institutions. Individuals like you and I, we have multiple financial relationships, and if we register for digital banking with each financial relationship that we have, then we're counted multiple times in the 185 million. What's interesting about the $185 million, that's a bit out of date. It was a couple of years ago. What we know is the market's growing between 5%-8% a year. Very likely that is now in excess of $200 million, closer to $220 million digital users. The reason why that's happening is, for example, if you're at $300,000 in your primary relationship, financial institution, you feel exposure because the FDIC limits are at $250,000. You open a new account to reduce your exposure. That actually expands our TAM. That's just one example of why the market's growing between 5%-8%. Perfect. Thank you. Could you maybe talk about the potential implications for Alkami from in-market consolidation? Yeah. As Bryan Hill shared in terms of the TAM that we pursue, Alkami tends to focus on the top part of the market that are not the mega banks. The evidence of that is that we have more average number of users per customer than any of the other digital banking providers. Those accounts tend to be the consolidators, not the consolidates. Our customers tend to be the companies that are more digitally forward. They think about digital as a strategy to grow, and they have growth strategies. The other thing is, we get paid by the number of seats. If two institutions come together and one of the institutions is an Alkami customer, and when they come together, they add seats, that's a growth opportunity for us. Whether or not the market consolidates, it ends up being good for Alkami because once again, our target market are the ones that are doing the growth. Alexei, the first quarter of this year we actually had what Alex described. We had a client that possessed 10,000 digital users. That client was merged with another financial institution that possessed 190,000 digital users. They chose our platform over the platform of the larger financial institution. Those users will go live in about 12 months, so similar to a typical new logo implementation. That's just one example of where our client benefited from a consolidation. Perfect. Bryan, as you touched upon, new logos, would you agree that a lot of the new logos that you sign up are replacement of existing systems, and many of them probably are somewhat legacy. Could you maybe discuss, both positives and negatives of the fact that you're dealing with somewhat outdated systems when you integrate your technology? Yes. I'll unpack that a little bit. Generally, this is a 100% replacement market. When we bring on a new client, we're replacing a digital banking platform that they are on, and typically that is a legacy system. That's a system that no longer meets the competitiveness of what's required through a digital banking platform. Now what's interesting is the core integration, which is very important. There's more and more point solution providers now in the space that are peeling off functionality related to the core. What's happening is you'll have core systems that tend to be legacy systems, but then you'll also have new fintech point solution providers that are more contemporary systems. We're replacing a legacy provider, we're integrating into a core, which is typically a legacy system, and then we'll have up to 20 other integrations that occur at the time of an implementation. What that does is as you gain proficiency in these integrations, that really becomes the protective moat in insulating you from competition in the future and unplugging us as the digital banking platform provider. I'd say that if I just build on that, the upside of integrating into those legacy systems and having the skills and the technology to do it is a very high gross retention rate. I would say the only downside is there's implementation cost that goes into that. It's not likely that Alkami would ever be. You You know, if you think about some of the very lightweight SaaS applications out there that have an 85% gross margin, it wouldn't be likely that Alkami would ever get to an 85% gross margin just based upon the effort necessary to do some of those integrations. Perfect. Thank you. Thanks, Alex. I feel like data analytics is probably among the most underappreciated elements of your investment case. Could you maybe talk a bit more about what it represents? Yeah. We made an acquisition earlier in the year, a company called Segmint, which was a modern data platform. If you think about a bank, a regional credit union, or regional financial institution, they have in their systems the best data that could be used to do highly personalized communications and marketing. But they've really struggled in using that data because that data, as Brian mentioned, comes off of legacy systems. The barrier for a financial institution has not been that they don't understand how to do, for example, digital marketing. It's been that they don't have the technical skills to take that data out of the transactional system and cleanse it and normalize it and then start analyzing it for the purposes of personalized communication. This acquisition is a company that has done that work already for most of the major cores. Now what Alkami has is Alkami has the ability to take data from most of the major core processors, ingest that data, combine it with the data that is sitting in the digital banking application, then provide essentially a full stack martech platform for a regional financial institution to be able to do the marketing analytics, to be able to do the marketing communications, and to be able to do the marketing reporting in terms of campaign ROI reporting. What we have today, if you think about a Salesforce Marketing Cloud or Adobe Marketing Cloud, there are technologies that are multi-billion dollar assets for companies, and we basically have the same kind of capability, but it is built specifically for regional community and financial institutions. Alex, why do you believe that the Alkami offering is better compared to what some martech firms are currently offering to these banks and credit unions? The main reason why it would be additive. If we've got customers that use Salesforce Marketing Cloud, they would use the Alkami data platform to do the analytics. The financial institution would use, for example, the Salesforce Marketing Cloud to send out an email related to the campaign. The primary reason why the customers like this capability is the data in the systems is the best data for personalization. If you think about somebody trying to use third-party cookies or first-party cookies, that's good, but actual transactional data is even better in terms of predicting what somebody's going to want from a marketing communication. That's why the customers like the platform. Obviously it's very early days for data analytics application, but how big do you believe this business could be longer term within your total revenues? When we announced the acquisition, we stated that we thought it added $1 billion to our TAM. My view is over time, this could be as big for Alkami as its core, banking platform. Once again, if you think about the size of the market for various different types of marketing platforms, this could be a pretty large opportunity for us. Understood. Just changing gears slightly, obviously your bread and butter business for many years has been credit unions. Now the focus is more on banking clients. Could you maybe talk about, you know, some of the products that you're adding and some of the differentiating factors that you've strengthened your platform with recently? Yeah. Let me make a couple general comments, and I'll let you kind of share the progress that we're making. Really the best way to think about the market is you have a retail financial institution and a commercial financial institution. Alkami's product has always been great for a retail financial institution. That's a financial institution that's pursuing an individual account, and our bread and butter has always been to create a great digital user experience which serves a retail account very well. Several years ago, we had a few of our credit union customers, one of which is the largest originator of SBA loans, say to us, "Hey, we have commercial accounts." Can you build some capability for commercial accounts? We started building the capability for commercial accounts, which includes things like treasury management or more fine-grained administration capabilities. Now we believe we have a very competitive product that's allowing us to win more of those commercial type of accounts. I'll kind of let you share some of the progress that we've made. Yeah. We actually have made a lot of headway in penetrating the banks out of the market. Today we have about 240 clients under contract, and of those about 206 are live. Of the 240 under contract, between 7%-8% of those are now banks. In 2022 we signed 11 bank new logos. You know, 1/3 or roughly more than 1/3 of our sales pipeline is now represented by banks. We feel that as we continue to make headway, as we continue to really, it's share a voice, it's marketing, it's just being recognized more as a digital banking provider to the bank side of the market, since the product now is ready to take to market. We feel by 2025, 2026, roughly half of the new logos that we originate will be banks, and the other half will be credit unions. I mean, it's equally as important for us to maintain our focus on credit unions. As we're doing this journey, it's not that we're now focused more on banks. It's we're going after the full market, and credit unions remain extremely important for our revenue model. Yeah. Just one more thing building on what Bryan said. Today we have either one or two unaided awareness in credit unions, and we're seven unaided awareness in banks. To Bryan's point, we now have the product. A lot of our focus starts to become more on the sales capability and the marketing awareness in that segment of the market. When those financial institutions in the US are looking to replace their, existing, provider, service provider, what are those decision-makers looking for in their future partner? Yeah. The two primary decision criteria when somebody's selecting or staying with a digital banking platform is, number one, user experience, and number two is reliability and performance. Why user experience? As Bryan talked about earlier, the mega banks have very large IT budgets, and with those very large IT budgets, they have created a good digital experience. It's now the number one criteria when somebody selects a new primary financial institution is what's the quality of the digital experience. The regional bank. I was at a bank in Seattle on Thursday talking to the CEO. He said, "My competition is not the bank down the street. My competition is Bank of America or Capital One." They need to have a digital experience that rivals the digital experience of a of a mega bank. Those are the two primary decision criteria. What the executives want to see is, "Can you reduce my risk of doing a conversion?" The way that anybody would reduce the risk of doing a conversion is by having experience doing integrations into the back-end core core applications. In the bank market, we're now making progress in terms of integrating into the most popular back-end core applications. By the end of this year, we'll have the majority of the bank core integrations completed through customer projects. In summary, Availability and performance, user experience, but it is a heart transplant, so they wanna have reduced risk in doing the conversion, and you overcome that risk by having experience doing integrations into the core processors. Bryan, Alex, earlier in this discussion touched upon how Alkami gross margins are different from some of the software peers, obviously highlighting very high retention rates. Could you maybe talk about the characteristics of your OPEX and, what EBITDA margins do you think Alkami could achieve longer term? Yeah. In Q1 of this year, so when we were announcing our 2022 financial results, Alex and I laid out a longer term perspective on scaling our business and profitability. In that, there were a couple of milestones. The first one is we will be adjusted EBITDA positive in Q4 this year. Those are the statements that we've made, and then we reiterated those statements in our most recent earnings call. In doing that, we expect that our gross margin will be 60% or more, which will be... That's in Q4 of 2023, and that's a 350-400 basis points improvement over 2022. As we move to a more profitable profile by 2026 with an adjusted EBITDA of around 20%, we would expect our gross margin to be around 65% at that point. Alex touched base on some of the drivers of why we're not an 85% gross margin business, it's predominantly because the implementation lift, which we think we can leverage and improve upon. Also there's some other characteristics in our financial model, where we resell third party IP that's tightly integrated into our platform, and there's a revenue share associated with that. That's a bit of a gross margin headwind. We still think we can leverage that and improve our gross margin on that revenue as well. We've made quite a few investments in our platform for scalability that will ultimately drive down the unit cost of hosting. Those are kind of the primary areas that will take us from a 60% gross margin to a 65% gross margin. Now, in that, you know, beneath the gross margin line for OPEX, there's really a couple of areas of focus. It's R&D, which today is around 27%, 28% of revenue, and by 2026, we'll scale our R&D line to 20% of revenue. I mean, today, we're 100% domestic in terms of our engineering staff. There's some projects underway where we'll likely start leveraging resources in other parts of the world to help leverage the R&D line. That's even outside of achieving our adjusted EBITDA goals. That's kind of an incremental item for us. In G&A, today we're a little over 20% of revenue. We've made all of our public company investments. It's just a matter of scaling G&A as we grow our revenue. When you look at sales and marketing, we're extremely efficient. I mean, today, we're around 15% of revenue. There's probably an ability to improve upon that some, Alexi, but our focus is really more on R&D and G&A within OPEX. To step back from where we are today in 2023 and our path to 2026, think about 700 basis points of adjusted EBITDA improvement a year, 200 basis points that come from gross margin. The other 500 basis points will come from a split between R&D and G&A. Perfect. Can you maybe talk about your confidence in sort of some of the targets you laid out, especially for this year? I mean, having such high gross retention and clear implementation pipeline probably helps a lot in your visibility in a given year. Yeah. I mean, what's great about our financial model, I mean, it starts with just a high, very high gross retention, as you mentioned. Even our net dollar retention today is 115%, and we feel as we continue to gain momentum and our client sales go to market, so where we're expanding our existing client relationships, that we can take that above 120% over time. That affords a great amount of visibility. What you combine with that is when I go into a 12-month period, I have effectively all of my new logo implementations in backlog. We entered this year with 1.6 million digital users in backlog that we'll implement in 2023. Now we're building almost an equal amount of ARR backlog related to our client sales go-to-market motion. I'll go into a year, I'll have 25% ARR growth sitting in backlog. What that does for Alex and I, because we know when those implementations are going to occur, it allows us to make the appropriate investments in the business to balance growth and profitability. We think in today's environment, balancing those two measures is very, very important. Our cost structure is predominantly fixed. We make some step investments along the way as we're scaling and growing the business. Investments that we're making are almost exclusively discretionary. We have a tremendous amount of control over when we become adjusted EBITDA positive, which will be Q4 this year. We could be adjusted EBITDA positive today, but we think it's important to balance the right level of investment with growth and then also within the constraints of our long-term profitability objectives. Perfect. How do you view potential, and obviously your appetite for M&A over the near, maybe midterm, particularly given some volatility that we're seeing in your space? Like any company, we, you know, people make decisions on build by partner, and that's how we look at something like an M&A, is we look at what's the customer spending money on? What out there is a unique asset that we would want to purchase? For example, Segmint was interesting to us because Segmint can apply to any of our customers. That would be the type of thing that we'd look at and say, "Gosh, that would be worth buying." We have other technologies that we partner with. For example, there's a biometric security product called BioCatch, which that's a great technology, and it's a great technology for us to embed in our user experience, but that should be a partnership technology as opposed to a company that we're buying. For us, it's what are customers spending money on? What should we build? What should we buy, and what should we partner with? I think it's important what Bryan said. When we take a partner technology, this is not a situation where we're just simply reselling something. This is a situation where we're taking a technology, and we're tightly embedding it in the customer's user experience, so the customer looks at the overall Alkami solution with the partner technology just being a piece of that experience. I mean, I, it wouldn't be a discussion Fireside Chat if I wouldn't ask about AI implications. Have you thought about some positive or maybe some headwinds that could come from this new evolution of AI, how have you been applying it in your technology? Interestingly, the biggest impact for us short term from anything like a ChatGPT is actually internal velocity improvement. If you think about Alkami today, think about all of the core processors, and then four or five years ago, if we were doing an implementation, we would integrate into four or five different products. Today, we're integrating into 21, 22 different products when we're doing an implementation. You can imagine the body of knowledge that's necessary to be successful in the market. These kind of capabilities for us right now are being applied internally to create velocity in the implementation and to create better knowledge sharing as opposed to running our customer data through a model which you would imagine we wouldn't really do because we've got a lot of PII data in the system. Perfect. Thank you both for being with us today. This has been great, and I really appreciate your time. Thanks, everyone. Thank you.