Alkami Technology, Inc. Q1 FY2023 Earnings Call

Hello, and welcome to Alkami's First Quarter 2023 Financial Results Conference Call. My name is Sarah, and I will be your operator for today's call. All lines will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the call over to Andrew Vinas. Andrew, you may begin.

Thank you, operator. With me on today's call are Alex Shootman, Chief Executive Officer; and Bryan 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. 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 Form 10-K entitled Risk Factors and Forward-Looking Statements. The statements made during the call are being made as of today, and we undertake no obligation to update or revise any forward-looking statements. Also, unless otherwise stated, financial measures discussed on this call will be on a non-GAAP basis. We believe these measures are useful to investors in the understanding of our financial results. A reconciliation of comparable GAAP financial measures can be found in our earnings press release and in our filings with the SEC. I will now turn the call over to Alex.

Thank you, Andrew, and welcome, everyone. I am pleased to report another quarter of strong topline performance and continued progress towards profitability. In the first quarter of 2023, Alkami grew revenue 34%, once again ahead of our expectations. We exited the quarter with 15.1 million live registered users on the Alkami platform, up 2.3 million compared to the prior year. And we achieved a $2.9 million adjusted EBITDA loss, better than the high end of our guidance for the quarter. This result keeps us on track to adjusted EBITDA profitability, which we continue to expect by the end of this year. Let me start with a topic that I know is top of mind for investors since the recent failures of Silicon Valley Bank, Signature, and First Republic, the macro environment for regional and community financial institutions. Since the end of March, I've been in the offices of 13 different CEOs of banks and credit unions, and those conversations, along with the data we see in our own systems, tell the same story. Our client base and target market has not been impacted by these bank failures. In my conversations, clients described the bank collapses as driven by specific business models, risk management decisions, and the resulting mix of assets and liabilities that are different from those of our clients. The CEOs told me their businesses are sound, they are well capitalized, and they have a low percentage of accounts above insured limits. Their focus is more upon the changing rate environment; they're experiencing high loan demand and a shift in the cost of deposits. In short, they are managing net interest margin in a dynamic environment. Each of these CEOs has been through many economic cycles. They reacted calmly to the bank collapses and adjusted their business strategies to the current economic situation. Each also told me that digital banking remains critical as they attract deposits and create and deploy new products. Our data tells us the same story as the CEOs. As a reminder, because of the data architecture of our single code base, we can capture, store and monitor anonymized transaction data. Across all of Alkami's clients, only 0.91% of Alkami digital banking users have any uninsured deposits, and an analysis of total deposits at Alkami customers shows that the percentage of uninsured deposits declined from 16.78% on March 16 to 16.51% in April. At the same time, there was a 0.25% increase in overall deposits. In summary, during this dynamic period for a few large superregional banks, Alkami's target market remains stable. The CEO sentiment I've heard and the data from our system matches with the activity we're seeing in our sales pipeline, which so far has continued to grow. We're seeing normal sales cycles and have yet to encounter increased buyer uncertainty. In fact, as Bryan will detail later in the call, our add-on sales to existing clients outperformed our internal plans for the quarter. We see this as evidence of continued demand for Alkami's digital banking technology. Another question we've heard from investors is whether consolidation within the roughly 9,500 banks and credit unions in the United States will impact our growth. As a reminder, our target market is the top 2,000 financial institutions outside the mega banks. These are expansion-oriented institutions that see technology as critical to their growth strategy and are the primary acquirers in any industry consolidation. As an example, during the first quarter, one of our clients renewed their contract, adding approximately 190,000 users in connection with the merger of a related financial institution. We expect those additional users to be added to our platform during 2024 and will be added similarly to a new logo implementation cycle. We cannot predict exactly when mergers or acquisitions like this will occur, but we expect to continue to benefit from industry consolidation as a result of our product and market focus. In addition to seeing 13 CEOs in their offices, I was able to see over 400 clients and prospects representing 191 financial institutions at our annual user conference in the Dallas area in April. This was the largest in-person event in our history, reflecting continued interest in Alkami's offerings. You're welcome to review a recap on our website, but here are a couple of items we shared with the attendees. First, we presented some new primary research by Alkami that shows consumers expect personalization and an increasingly digital experience. Some highlights from the research include 55% of consumers expect their preferred financial institution to know if they are under financial stress and proactively offer ways to help; 61% expect their preferred financial institution to use their income and purchasing data to provide custom information, advice, and offers; and 44% prefer to open a checking or savings account completely online, while 78% of mega bank customers would be open to switching their deposit accounts over to a local or regional financial institution that offered better interest rates and a five-minute digital account-opening experience. This is significant, given a report that since 2014, Americans have forfeited $603 billion in interest by leaving their deposits in the five largest banks. Second, we outlined elements of our long-term product strategy, which is based upon consistent feedback from the market. Our target market wants to shrink the footprint of their core system to focus on their back office, and then they want a digital sales and service platform that integrates with their core and provides them the ability to personalize the customer or member experience. In response, the Alkami long-term product strategy is focused on three areas. The first is to continue to be a great digital banking application. The primary decision criteria for anyone selecting or remaining with the digital banking technology are user experience and reliability. We continue to invest to make sure that our clients' customers have a great experience by extending our user experience development efforts to even more of their journey. In last quarter's earnings call, I outlined the activities underway to ensure that the Alkami platform can continue to scale and deliver the reliability and performance expected out of an online banking application. The second part of our product strategy is to extend the notion of user experience to include making it easier for our clients' customers to use innovation by extending Alkami's platform capabilities. Since 2019, $742 billion has been invested in fintech, which has resulted in new capabilities our clients' customers desire. Alkami will continue to build out extensibility elements of our platform, such as our SDK and API, so that our customers can easily integrate new product offerings. The third is to unleash the power of our clients' data. Financial institutions should be the best at creating individual experiences because their core and digital banking systems have the best data available to target and deliver content and measure the return on investment of their efforts. Alkami will deliver specialized data and marketing technology to make it easy for our clients to create personalized digital banking experiences. In closing, I am enthusiastic about our opportunity. We continue to see healthy demand, and our target market is still in the early stages of digital innovation. Our clients require modern banking solutions, and they consider investments in Alkami to be mandatory innovation in their most important channel. As they see growth, they are investing in digital onboarding technologies and business banking to attract new customers. And every client or prospect I talk with realizes their data will allow them to create personalized experiences for their customers, and they are initiating their data strategies. Internally, we continue to build momentum on all of our key initiatives, and we continue to benefit from the scale built into our business. Altogether, this makes me confident in both our operational and financial objectives for 2023 and beyond. And now I'll hand the call to Bryan to take us through the numbers.

Thanks, Alex, and good afternoon, everyone. During the first quarter of 2023, we continued to deliver strong financial results and experienced healthy demand for innovation from new logo opportunities and our existing client base. For the first quarter of 2023, we achieved revenue of $60 million, which outperforms the high end of our financial guidance and represents growth of 34%. This was driven by strong performance across our primary revenue drivers. We implemented seven new clients in the quarter, bringing our digital banking platform client count to 206. We now have 42 new clients in our implementation backlog representing 1.4 million digital users. We exited the quarter with 15.1 million registered users live in our digital banking platform, up 2.3 million or 18% compared to last year and up sequentially 583,000 digital users. Over the last 12 months, digital user growth continues to be driven by two areas. First, we implemented 34 financial institutions supporting 1.4 million digital users. Second, our existing clients increased their digital user adoption by 1.3 million users. Offsetting digital user growth was churn of just over 300,000 digital users, of which the majority is represented by a single client that transitioned off our platform during the third quarter of 2022. We continue to maintain a very high gross retention rate of just over 97% measured in terms of ARR and digital users retained over the last 12 months. We ended the quarter with an RPU of $15.88, which is 15% higher than last year. This compares to our blended market opportunity of approximately $58 per user. The Segmint acquisition contributed 7% of ARPU expansion, along with ARPU expansion of 8%, driven by add-on sales success and the addition of new clients who tend to onboard with a higher average ARPU. Subscription revenue grew 34% compared to the prior year quarter and represents approximately 96% of total revenue. We increased ARR by 36% and exited the first quarter at $240 million. In addition, we currently have approximately $48 million of ARR in backlog for implementation over the next 12 months. We continue to see healthy demand across our product portfolio. Our Q1 2023 new sales performance outpaced 2022 by over 40%. We signed six new digital banking platform clients for the first quarter, of which three are banks. Included as a new logo sale, during the first quarter, an existing client merged with a related financial institution, adding roughly 190,000 digital users. This demonstrates our go-to-market advantage resulting from a focus on the top 2,000 financial institutions and how this segment of the market may benefit from market consolidation. Our add-on sales focus continues to yield returns, representing over 50% of new sales for Q1 2023 compared to 24% and 37% for the 2021 and 2022 full-year periods. In addition to add-on sales, our client sales team is responsible for client contract renewals. During Q1 2023, we renewed three client relationships where we raised the ARR run rate by 9% through a combination of new product sales and higher minimum commitments. We expect to renew over 20 clients during 2023. Now turning to gross margin and profitability. For the first quarter of 2023, non-GAAP gross margin was 58.1%, slightly lower than the prior year quarter, representing 20 basis points of contraction, but 170 basis points higher than Q4 of 2022. Improvement in our gross margin run rate compared to Q4 2022 results from leveraging prior implementation investment, improvement in our hosting cost unit economics, and an improvement in third-party IP partner cost execution due to actions taken late last year. Our near-term target operating model is a non-GAAP gross margin of 65% as we scale our revenue. We expect to achieve our target gross margin at a pace of roughly 200 basis points of expansion on average per year, reaching the 65% level by 2026. Also, we expect to achieve a gross margin above 60% during Q4 2023 as we exit the year. Moving to operating expenses. For the first quarter of 2023, non-GAAP R&D expense was $16.8 million or 28% of revenue, 60 basis points higher than the year-ago quarter. Margin dilution was primarily driven by higher headcount as we've invested in our technology platform for scale. We expect R&D as a percentage of revenue to scale as we progress through 2023, especially in the back half of 2023. As a reminder, our target operating model is to leverage R&D to 20% of revenue while we continue to invest and expand our platform. We currently expect to achieve our objective during 2026. Non-GAAP sales and marketing expenses were $9.3 million or 15% of revenue. In the prior year quarter, sales and marketing represented 16% of revenue. We expect to maintain or slightly improve our go-to-market efficiency as we scale the business and gain market share. In terms of the progression of sales and marketing expenses throughout the year, bear in mind, April is when we held our annual client conference, which results in approximately $1.8 million of higher spend in our second quarter compared to other quarters of the year. Non-GAAP general and administrative expenses were $12.4 million or 21% of revenue. In the prior year quarter, G&A was approximately 24% of revenue. The margin expansion is primarily attributable to revenue scale. We expect to leverage G&A expenses as a percentage of revenue as we move towards our profitability objective with an expectation of 10% to 12% of revenue during 2026. Our adjusted EBITDA loss for the first quarter was $2.9 million, which is better than the high end of our expectations and 18% better than the prior year quarter. We expect to be adjusted EBITDA positive starting in Q4 2023. As a reminder, our target operating model is to exceed an adjusted EBITDA margin of 20%, which we expect to occur for the full-year of 2026, which coincides with the achievement of our 65% gross margin goal. Now moving on to the balance sheet. We ended the quarter with just over $185 million of cash and marketable securities and just under $85 million of debt. We are comfortable with our net cash position as it represents several multiples of capital necessary to reach free cash flow positive, which we will achieve a few quarters after becoming adjusted EBITDA positive. Related to our liquidity and the recent bank failures, Alkami filed an 8-K on March 13 of this year, disclosing limited revenue and liquidity exposure with Silicon Valley Bank. This exposure was ultimately remedied by this First Citizens acquisition. Related to Signature Bank and more recently, First Republic Bank, Alkami possesses no revenue or liquidity exposure with these financial institutions. Now turning to guidance. For the second quarter of 2023, we are providing guidance for revenue in the range of $62.5 million to $63.5 million, and an adjusted EBITDA loss of $4.5 million to $3.5 million. For the full-year of 2023, we are raising guidance for revenue to a range of $257 million to $261 million, representing revenue growth of 26% to 28%, and an adjusted EBITDA loss of $6 million to $3 million. Additionally, because of the impact of expense timing, such as our client conference, as mentioned earlier, we expect the second quarter to be the high point of our adjusted EBITDA losses in 2023, modestly higher than the first quarter of the year. In closing, I'm very pleased with our continued execution, both operationally and financially. We are demonstrating growing success in the market, continued discipline in our operating costs, and our commitment to driving shareholder value through both revenue growth and margin expansion. We remain on track across over 65% gross margin and a 20% adjusted EBITDA margin objective in 2026, all while establishing Alkami as the premier digital banking provider in the marketplace. With that, I'll hand the call to the operator for questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Mayank Tandon with Needham. Please go ahead.

Thank you. Good evening. First, congrats on the quarter and in the midst of all this uncertainty. So Alex, I just wanted to ask you, given that this crisis seems to be spreading with news breaking this evening with PacWest Bank also now exploring options, do you feel any concern that if this does continue to spread, at some point, that could have some implications for incremental opportunities as you look to expand into the bank market? Could you maybe spend a little bit more time giving us your thoughts on potential opportunities if the crisis gets worse?

Yes. If you look at the banks that have been affected, these are banks with many tens of billions of dollars of assets that are publicly traded banks. And as I said earlier, they have specific business models. I had one customer tell me, Hey, Alex, that wasn't a run on a bank. That was a run on a business model. So they have specific business models that are causing challenges right now. And our target market doesn't have those business models. And so that's why the customers that I talk to individually said, look, I didn't get a call from a — one customer got one call from a teenager who had a $5,000 savings account that wanted to know if their money was going to be okay. These customers all told me that they had maybe 92%, 93% of their accounts under deposit limits, and they had enough capital cushion to cover anything that was over a deposit limit. And so I'm not Nostradamus; I can't predict the future, but the problems that are impacting the three banks that failed and then my understanding of PacWest's business model are just different business models in our target market.

Got it. That's helpful. And then I just want to ask you a follow-up question. Again, you talked a little bit about the product portfolio and the attach rates. So as you look at your core solutions, I think you have 26, if I remember correctly, maybe that has expanded over time, could you point to where areas you're seeing the most traction in terms of interest from your clients and maybe areas that you might be seeing softer trends? So just give us a little bit more color on the portfolio, how that's shaking out as you talk to customers in terms of interest from their side? Thank you.

Yes. Mayank, this is Bryan. I'll take this question. Our clients, and we've talked about this at Co:lab, truly view our platform as a sales channel as well as a service platform. So it helps them drive revenue, it helps them drive engagement, as well as helps them on the operating cost side of their business. So as we enter into a — what can be viewed as a challenged economy, our platform really helps in both areas where they're focused. So where we normally see for new logo opportunities, there are about 11 products that cut across our product portfolio across our eight product family categories that are almost on every deal. And then depending on the operating strategy and the priorities of the financial institution, there are another 10-or-so products that tend to get taken at different take rates across our product portfolio. And those can be in the areas of security; they can be in the areas of financial wellness; in some cases, in the areas of client services, which includes things like chatbots. It just depends on the client's operating strategy. Also, what we see in our client sales team is traction across those same last three categories. So where we have seen in 2022 and then also in early 2023 is a lot of take within our money movement products, which includes bill payments and account transfers or instant ID verification. Within client services, I touched base on kind of chat or conversational AI-type products. And then within fraud and security, we see growth around account takeover and our ACH Alert product.

Maybe if I just layer on top of that, this fits with Bryan's narrative. The three main business topics that customers will have will be around fraud, and how do you help me protect my members and customers against themselves, right? So the whole account takeover piece. Bryan talked about money movement. Everything related to any type of digital issuance with a card or any kind of digital account opening, anything that they can do to remove friction for a customer or member. And then data. They are all understanding that they have to begin to differentiate themselves not just through a great user experience but through the way that they personalize that experience, and they have to do that with the way that they use data. And that can create service opportunities for them or create additional product sales opportunities for them. But think of the three big buckets of fraud, money movement, and data.

That’s great color. Thank you so much for taking my questions.

Our next question comes from Bob Napoli with William Blair. Please go ahead.

Hey. Thanks so much for taking the question. This is Adib on for Bob. So just on that theme of some of the regional banking turmoil, it sounds like demand and the sales cycle remains pretty healthy still. But could you kind of comment on how your conversations are trending with your credit union customers versus your banking customers, and then just kind of remind us how much of the business is being driven by credit unions? Thank you.

Yes. This is Alex. I'll take the commentary part and let Bryan speak to the mix between banks and credit unions. As I said before, I spent time talking to both bank CEOs and credit union CEOs, both existing customers and prospects. And we have to remember, you kind of have three tiers of institutions in the states. There's a half a dozen mega banks. These are the ones that we read about as the too big to fail banks. Then you've got maybe 20 or 30 banks that have assets over $50 billion. Then there are 9,000 banks and credit unions that are local institutions that will have between 500 and 2,000 people working for them. And those are the institutions that are buying our products. We didn't sell anything to First Republic Bank or Silicon Valley Bank. And those CEOs, as I said earlier, have boards that are very conservative and are members of the local community and are very focused on the longevity of those institutions. They talked about sound fundamentals in terms of the match of their liabilities in terms of deposits and their assets in terms of investments or loans. That's the general sentiment of the customer base, and there was no real difference between a community bank and a credit union in terms of the way they talked about their business. I'll let Bryan talk about the mix.

Yes. The mix of our live clients, we're still at approximately 95% credit unions, roughly 5% banks. That's really driven from how we were founded, what our original strategy was 12 years ago, and how we've progressed as a company. However, more recently, we've made investments in our business banking platform and added ACH Alert to our platform; we're seeing a lot more traction on the bank side of the market. We have 42 clients in backlog, of which roughly one-third are banks. If you look at the new sales that occurred during 2022 and into the first quarter of 2023, last year, roughly one-third of our new sales were banks. In Q1 of this year, out of six clients, three were banks. And when you look at our sales pipeline, over 35% is represented by banks now. We feel like we're making a lot of progress.

Perfect. Thank you. And a quick follow-up, if I could squeeze it in. Could you just kind of speak to your confidence in terms of your revenue guide in 2023? And obviously, the high degree of subscription revenue drives greater visibility, but just any kind of incremental comments in terms of your confidence in meeting or exceeding that target? Thank you.

Well, we did raise our guidance for the full year, so that should speak for itself regarding our confidence in achieving our revenue number for the year. In any given quarter, one quarter out, I have a very high degree of confidence that we're going to achieve that quarter. Looking further out, we have a full year of new logo implementations already scheduled. Of our 42 clients in backlog, call it 32 to 34 clients, because you can always have one or two that shift out, will implement in the last three quarters of the year. We're set to implement 42 clients this year, up 40% from 30 last year. The visibility we have is strong; our clients are growing, and our sales pipeline is extremely healthy.

Thanks for taking the questions.

Our next question comes from Charles Nabhan with Stephens. Please go ahead.

Hi. Good afternoon, and thank you for taking my question. With the business mix shifting more towards add-on sales, I was wondering if you could comment on the incremental margin benefit from that mix shift and the degree to which it might be driving the 200 to 300 basis points of gross margin expansion or any efficiencies on the operating expense lines?

Yes. The main advantage we have selling into our base is the implementation timeline. We implement individual products much quicker than completing a full digital banking conversion. For credit unions, the digital banking platform conversion can take between eight and ten months; for banks, it's a bit longer. But that also depends on the number of products taken on the initial order. When you add one or two products through our cross-sell motion, those products implement between three and four months, just a quicker timeline. It's a lower implementation lift, which means lower implementation costs involved, but more importantly, order-to-revenue occurs much quicker.

Got it. And just as a quick follow-up, and I apologize if you mentioned this already, could you maybe comment on the ARPU, the initial ARPU from the 42 banks and credit unions we have in the pipeline, and if you're seeing more upfront consumption on your new go-lives?

Yes. So for banks, on average, we're seeing around a $30 revenue per user and above. That's consistent in our pipeline and with recent implementations. The first factor driving that is the take of our commercial banking product, which adds a nice ARPU element for us, and banks tend to have fewer users. So where you may lose ARR through a lower user base, the commercial banking aspect drives up the ARPU.

Great. Thank you. Congratulations. It's terrific to see you defy the bearishness. So no one's asked the ChatGPT question, right?

Not yet, Pat.

But go ahead, Pat.

So what are the implications, if anything, for you, Alex, in your business? What areas are you working on? And then I don't think you have this issue, but it definitely creates an issue for some companies that price, for example, on a per-seat basis for customer service reps, where there's going to be less customer service reps. So is there any element like that that we should be aware of in terms of how you price your solutions?

No, because we price based upon the seats of the digital users. So unless people get replaced by ChatGPT, and they stop putting seats in. But I'm being a little bit flip, Pat. There’s not really a replacement there. Obviously, it’s a fascinating technology. The thing we focus on a lot is because we're a trusted platform, and the way you get things from the model is that you feed the model. We're not going to feed the model a bunch of information about the actual users of Alkami because those are individual digital banking applications that have PII data in them. Based on our pricing protocol, it’s not like a learning platform where you could get the same results from ChatGPT and might stop paying for that service. We're not in that situation.

Our next question comes from Josh Beck with KeyBanc. Please go ahead.

Hi. Thanks for taking the question. I wanted to also ask a macro question, but a different flavor since you obviously had such a meaningful touchpoint with so many of your customers in April. What was their general thought process around NIMs? Certainly, credit tightening has come up quite a bit. And maybe how some of those factors are feeding overall budgets and then perhaps the priority of digital banking. Just curious about your thoughts on that?

Yes. Well, let me first start with just their views on the stability of the business. I want to go back to a data point that I shared. 0.91% of the users, or those are the customers or members on the Alkami platform, have any uninsured deposits. So if you think about that out of, as Bryan said, 15 million users on the Alkami platform across our customer base, less than 150,000 of those users have anything above the deposit limit. What that creates for our customers — at least what they told me — is a lot of confidence in the stability of their business because their entire customer base and deposits are under the deposit insurance limit. They’re not having the conversations in terms of should I pull my deposits? Everything starts from that base that there's a lot of stability. What’s changing for them is, okay, if I need to attract deposits instead of, a year ago, when I had too many deposits — how am I going to attract deposits? Well, I know I need better digital account-opening capabilities. So talk to me about digital account opening. How are we going to implement that in our business? How are we going to do digital issuance of cards or issuing into a wallet? So in terms of attracting deposits, they’ve got decisions to make on how much they want to pay for a deposit, but they understand they need to invest in digital technology. We also hear strong loan demand and the development of different products they want to promote to their base. They want to promote products in the application itself, not just sending emails. They're very interested in understanding how our data platform allows them to understand lifestyle indicators in their member base and create offers promoted in the digital banking platform itself, and measure the effectiveness of those campaigns. So that’s the conversation I’m having with those CEOs. During our conference, many were sharing how they need to manage their net interest margin in a dynamic environment and how they recognize the need to invest in digital technologies.

Very helpful. Obviously, it sounds very resilient in terms of the demand for the platform for a lot of reasons. Maybe more of a financial question for Bryan. I think you mentioned, ex-Segmint, it was high single-digit RPU growth, and I believe we're lapping that acquisition. So is that a good baseline to think about? Could it potentially be higher than that when you think of some of the implementation and bank mix factors? Just help us, at least, think through that a little bit.

Yes. So the first quarter, ARPU growth was 8% and in Q4, it was 7%. So it's a slight tick-up from Q4 2022. Looking at our longer-term revenue model, we typically project user growth of about 20% and ARPU expansion of around 5%. In any one quarter, those dynamics can shift somewhat, but overperformance is likely to come from ARPU expansion as our client sales and add-on sales continue to accelerate. In Q1, 50% of total sales were from add-on efforts. For the full year of last year, it was 34%. So as we gain success in cross-selling into our base, it provides us a revenue growth advantage due to the speed with which those orders convert to revenue as well as ARPU expansion opportunities.

Our next question comes from Andrew Schmidt with Citi. Please go ahead.

Hey, Alex. Hey, Bryan. Good quarter. Thanks for taking my questions here. I wanted to drill down on just user growth. Any deviations that you saw shortly after the banking turmoil or into the second quarter that you've seen? Obviously, I don't think these things turn on a dime, but just curious if there are any call-outs from a user growth perspective? Thanks, guys.

Yes. As I said earlier, looking at the statistics we pull out of our system, there was no abnormal movement in user growth between the middle of March and today.

In addition to that, Andrew, our existing clients grew again in the low double digits year-on-year. We added just under 300,000 digital users from growth within our base, coming in right at our typical expectation of around 100,000 digital user growth per month throughout the year.

Got it. Thank you for that. Appreciate that. And I apologize if this was discussed. I joined a little bit late. It sounds like demand sales cycles continue to be consistent, pretty robust. But any observations quarter-to-date? Does momentum continue from a conversion perspective? Just curious on the trend line there in terms of more recent trends, if you could share anything?

Yes. As I mentioned in my opening comments connected to both the CEO sentiment and the data from our systems, we've continued to see our sales pipeline grow consistently, both in new logos and in add-on sales. If anything, we've seen the mix of the new logo pipeline move from maybe one-third banks and two-thirds credit unions to getting closer to a 50-50 mix, between banks and credit unions. So we're seeing growth in add-on sales from a pipeline perspective and steady growth for new logos. The mix of banks and credit unions looks good.

What I'd also add, Andrew, is we're not hearing from our sales force that the sales cycle is extending or there's unexplainable delays in the sales cycle or a shift in investment perspectives of the end market. In fact, we're finding strong needs for innovation in our existing base. The take rate of products is increasing in each year's cohort over the last couple of years, and that continues into 2023. This first quarter saw new sales up over 40% compared to Q1 of last year. Right now, the visibility we have into our sales pipeline looks promising for another good quarter in Q2, but now we're predicting the future versus talking about what actually printed. We have confidence that we will execute, as we've demonstrated in 2021, 2022, and now in the first quarter of 2023.

Makes sense. I appreciate that. That's very constructive. Maybe I could sneak just one last question in on product. Just the business banking platform, maybe you can comment on just the demand you've seen for that. It seems like that's a pretty key part of penetrating the bank market. Just curious about the demand and uptake you've seen, both in terms of signed clients and the pipeline there?

There's an extra benefit that's occurred for us with the business banking products. It allows us to be competitive in the bank market targeting commercial accounts. We signed a bank in the first quarter, and talking to that CEO, their target market is family-owned businesses. We rethought the management of users in a bank account from a governance perspective, making it more intuitive for small and medium businesses. The CEO felt our sub-user management, in particular, would be easier for his organization and customers to use. Also, credit unions are considering increasing their investment in business banking to attract stable deposits. Every credit union CEO I've met with has this as part of their strategy; that creates a good opportunity for us.

In our new logo cohort in 2022, just over 40% took business banking on their initial order when banks were about one-third of the portfolio. This illustrates the point Alex was making. In Q1 of this year, 60% of new logos we signed included business banking. We've improved functionality and we feel equipped to compete in the bank market.

Okay. Hey. Good afternoon, guys. Thanks a lot for taking my questions and squeezing me in here. Maybe, Bryan, I'll start with you. A lot of focus on the resilience in the business. I had a little bit of a question for you just on backlog. I think you mentioned we have about 42 clients in backlog. But maybe the question is, are those clients that are going to be implemented short timelines set in stone? Is there any chance that those implementations could be delayed? Just as we sort of think about how the user base here grows in 2023? Does that make sense?

No, it does. So 1.4 million users, those 42 financial institutions represent that number. The implementation dates are scheduled, and there’s a date we’re trying to land upon to have the financial institution live on our platform. That primarily drives from their current provider’s contractual exit. Things can happen during implementation outside of our control; sometimes it's related to systems we are integrating with. However, we generally land the implementation date within a couple of weeks of the original expectation. It can shift due to extraordinary circumstances, but generally, when it’s items in our control, we stick to the schedule.

As Bryan said, the schedule date is not a date of convenience for the customer. The schedule date is always backed up to their transition from another system. Both the customer and Alkami have incentives to drive towards the schedule date.

That's a great point. That's a great point. Alex, maybe for you, if I could squeeze a follow-up. And just talking a little about the credit union versus bank composition earlier. I was wondering if you could just — zooming out, could you just talk about the difference in backdrop or defensiveness, right, from a macro perspective, for credit unions versus banks in terms of their willingness to spend and invest in this backdrop?

Generally, for a business banking product, the bank is charging their customers to use that. So there's a willingness for a bank to invest in that product because it generates revenues. Credit unions have been more focused on member service and delivering a great experience. That’s a generalized comment; however, credit unions will invest in our products for a few reasons. There are certainly some that are loan-focused and are growing and see investments yielding revenue. A different kind of credit union may focus on service efficiency. Another segment may prioritize personalized services for members. I had discussions with one CEO who said they consider digital marketing as member personalization and are willing to invest in it for that reason. I gave you more than you was seeking.

Got it. Now, I will take it. Thanks a bunch, guys. I appreciate the time.

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