Today, both in person and online, my name is Chris Kennedy. I'm a research analyst at William Blair covering the fintech and payment space. For a complete list of research disclosures and or potential conflicts of interest, please visit our website at williamblair.com. Next up is Alchemy Technology from the company. We have the CEO, Alex Schutman, and the CFO, Cassandra Hudson. The company was founded in 2009, they came public in 2021, and they're a leading provider of digital banking solutions to credit unions and banks. This is a highly complex, highly regulated market that's not easy to displace in our view, and I'm sure management will talk a little bit more about that. So with that, let me pass it over to Alex.
Hey, Chris. How y'all doing? Appreciate you spending a few minutes with us. Let me share a little bit about the company, the market, some of the dynamics that are going on within our market and why we feel good about our growth prospects. so first off what do we do by a show of hands how many of y'all your primary bank is a really big bank like a Bank of America Chase okay so if you think about everything that you do digitally whether that's in a mobile application or that's online there are 9,000 banks and credit unions that don't have access to the same talent and capital that Bank of America, Chase, Capital One have. To give you a sense, our average customer spends about $800,000 a year with us. I was at a bank last week in Minneapolis, one of our customers visiting with them, and they have two people to run all of their systems. That's their back-end systems, that's their lending system, that's their digital systems. And they believe that their primary competition in their market is not the bank down the street. Their primary competition is Chase and Chime. And without boring y'all with everything that's happened in the last five to seven years, it's existential for them that they have to have digital capability that's as good as Chase and Chime. and they essentially white label Alchemy. So one of our customers, when their customers are using the technology platform, it's all branded, it looks like them, but under the covers, they're white labeling Alchemy. So Alchemy is a cloud native digital banking platform that is built to help regional and community financial institutions compete with money center banks and fintechs and survive. The market itself is very large. I'll walk down from TAM to our ideal customer profile. But from a TAM perspective, there's 9,000 banks and credit unions in the United States. When we look at our ideal customer profile, so that would be a financial institution that is at the larger end of that market and a financial institution that has a legacy digital banking infrastructure. There's 1,330 banks and 900 credit unions that are on back end systems that we have experience integrating to and are the size that we target, the upper end of the market, and have a legacy system. Now, what's really interesting about our market is because the contracts average five to seven years, what that creates for us is a very steady, predictable stream of new logo opportunities. The company's business is about how do we bring a customer onto our platform and then grow them over time. And Cassandra will share a little bit more of the cohort analysis, but essentially a very predictable stream of new logo opportunities because of the length of those contracts. And then we get them onto the platform and then we are able to grow them. And the other thing that's very predictable about Alchemy is the buying cycle and the revenue cycle. So once again, 1,330 banks, 900 credit unions. Now get in the mind of the buyer. I've got a seven-year contract. Two years before the contract ends, I will have decided that I'm probably gonna wanna upgrade my digital banking system. I'm gonna go through a year buying cycle, and then there's a year implementation cycle. Our revenue doesn't start until the customer's live on the platform. What that means is we've got a tremendous amount forward visibility into the opportunities that are coming into us the length of time that we're in a buying cycle when they're going to make a decision once they make a decision when their implementation is slotted when the and when the revenue is going to is going to start for us so some dynamics about about our market digital banking has become a much broader platform than it was even 10 years ago we would bring customers on our platform 10 years ago and they might have 10 products 11 products if you think about what you were doing with digital banking 10 years ago you were checking your balance you might move some money maybe you would deposit a check and and that was that was about it now when you think about everything that you're doing in and digital banking. You've got an AI chat bot that you're working with. There's all sorts of fraud detection that's going on. You're making payments through Venmo and through some other capabilities. You're checking your FICO score. And so what that's created for us, and the great news for us is all of that capability comes to market from the really large banks who are continuously driving a level of innovation. When they drive a level of innovation, that creates demand within our market, which creates a broadening product suite, which is what we get to sell into. So once again, the business model is steady stream of new logos, bring those new logos onto the platform, and then we've got a very large product portfolio to be able to grow those customers. What we've been investing in over the last couple of years that started with an acquisition is a digital, an integrated digital and sales and service platform. If you go back to 2022, interest rates changed, and for the first time really in a generation, our customers had to attract deposits. Prior to that, core deposits were paying zero or 1%. they were paying zero, 1% everywhere. There was no reason to move your money. Interest rates go up. Money starts getting hot and moving. And these institutions needed to attract deposits. Well, those of y'all that use a very large bank digital platform, you can't imagine what the experience is like for a smaller bank. You go to open an account online and two clicks in, it'll say, print off a PDF form, sign it and bring it to the bank branch or you need to call the call center and so these folks were faced with an existential crisis of money is moving out so they spent about a year doing spot cds and buying wholesale loans and then they finally said oh my gosh we have got to completely modernize the front end of our business that's why we made an acquisition of a company called mantle it was the dominant deposit origination platform and we spent the last year integrating that together with our data and marketing platform and with our online banking application and so that's become a real differentiator for us in the in the market when we acquired the digital sales and service platform is our data and marketing platform online banking and origination. When we acquired Mantle, we had 11 customers that had all three products. That acquisition closed at the end of Q1 last year. We started building the integration throughout the back half of the year, and then we ended the year, or we ended the last quarter with close to 50 customers that have all three products. And so that's our evidence that that's a real differentiator for us. So when you think about us for a long-term growth, there's really four things that we focus on. The first is continuing to expand. We are the number one company in terms of live mobile users in the credit union market space, so continuing to expand into the bank marketplace, implementing more and more capabilities into our integrated digital sales and service platform continuing to grow the spend that each customer has with us and then within the the system that i'll call alchemy alchemy is a very large it's a single code base multi-tenant sas with almost 24 million consumers on the platform so that's a pretty big platform and we need to continue to scale those economics with that i'll turn it to uh to cassandra thank you hi everyone
um cassandra hudson alchemy's cfo i can't get away with saying how y'all doing because i'm from the east coast but thanks for having me um i'm going to give you some of the financial details in just a minute and as well as walk through our growth algorithm but what i really want the takeaway to be today is that we're growing very efficiently we have a highly visible and durable financial model and it is underpinned by these banks and credit unions that we serve today all right so just kind of hitting on some of the q1 highlights we signed six new logos in q1 half of which were our dssp offering that alex was just speaking about earlier we implemented seven clients and we closed the quarter with about 307 clients on our digital banking platform. We today have 40 customers in our backlog representing about 1.4 million digital users and with the majority of those expected to be implemented over the next 12 month cycle. We exited Q1 with 23 million registered digital users on our platform and that was up 2.5 million and grew 12% on a year-over-year basis. That growth is really driven by two things. One is just new customers going live on our platform and then the second is existing customers just growing their user bases organically. Our ARR grew 22% and closed at almost 500 million and we have remaining performance obligations of about 1.7 billion today which is about three and a half times our current ARR. So you know again just speaking to the visibility that we have in our model from a top-line perspective. Just lastly on churn you know we continue to have really low churn with digital banking clients churning less than 1% of ARR and that's been very consistent from a historical trend perspective. We have multiple levers to drive our overall growth. I really think about it in terms of three categories. First is our new logo ads, which we see as remaining relatively consistent in terms of the absolute dollars that we can add in any given year. Second would be our customers growing their user bases, and that growth, just as I mentioned, was about six percent in q1 and you know we see this growth kind of remaining healthy in the future with a slight moderation towards overall market growth as we get larger and our base of customers becomes more representative of the market and then lastly would be arpu growth and this really is becoming a more meaningful driver of our growth you know today and expected to be in the next several years as we continue to sell more products across our base of customers with about 35 products that we're actively selling today through our third-party motion as well as the Alchemy-owned products that we have in-house. As I think about how the growth algorithm breaks down, you know, I really expect new logo contribution to be about 25% of our growth, existing customers to contribute another 25 percent, and then ARPU to really become more meaningful, driving about 50 percent of our overall growth. Here's just some visual of how our cohorts grow over time. You know, again, this speaks to the strong upsell cross-sell motion that we do have and the natural growth that we get from our customer base. We see customers doubling in size over the course of about a four to five year period and then quadrupling over a 10-year period as customers of Alchemy. So this helps drive growth for us over the long term and gives us a lot of visibility into what lies ahead in terms of our overall revenue growth. Just hitting on some of the historicals, you can see that we have continued to have really strong revenue growth in q1 we closed the quarter with about 126 million uh in revenue um and you know expect this trend to continue um with our financial guidance for the year uh guiding to just shy of 530 million kind of at a on a midpoint basis in terms of revenue uh and adjusted ebitda approaching 100 million um you know we're really seeing a lot of power a lot of leverage from a cost perspective uh in our model and that has been driving even a margin improvement over the past several years and it will again this year and that's evidenced by what we saw in q1 with over 500 basis points of expansion on the ebitda margin from a 2030 financial framework perspective we expect to see gross margins approaching 70 percent as we get more efficient with supporting our customers and overall economies of scale from hosting cost perspective an adjusted EBITDA margin expanding about 300 basis points on average between now and 2030 and we also expect to achieve a rule of 45 in this time frame So I think that is it, and I will hand it back to you, Chris, for Q&A.
Yeah. All right. Thank you for that. So we'll open it up to the floor. Don't be shy if you have any questions. Maybe I'll just start out. Alex, you talk to a lot of community banks and credit unions in the market. What are you hearing from their clients in terms of AI and how they're viewing that?
Yeah, if you go back to what I said earlier, right, you've got our largest customer has 2,200 employees. Our second largest customer has the same number of employees as Alchemy does. Our average customer has about 300 to 400 employees, so they don't have a big staff where they're thinking about coding their own core system or their own payment system or their own digital banking system. What they're looking for is capabilities that they can integrate into their digital banking system that will help them do a better job of underwriting, that'll help them do a better job of marketing so they can attract new customers, that will help them take cost out of the back end of the system. So when we're talking to the customers about AI, it's mostly help me with fraud, fraud loss, help me do a better job of underwriting, help me attract more customers, and I've just got a lot of back office manual work that I want to automate.
Thank you for that. And can you just talk about the complexity of the market integrating with core systems and just how difficult this market is?
Yeah, the thing that's hard to get your head wrapped around for those of us that haven't worked in a small bank, you think about any Bank of America customers at all. So if you think about when you're using your app and you're watching what's going on in the header as you move to different places, you're going to different Bank of America applications that over the years they've done a good job of creating a user experience. Every one of those things that happens in a community bank is a third-party application. So they've got a 40-year-old core backend system that might be written in COBOL or RPG. They've got 20 different third-party systems that they're using that they've contracted with these third parties. and alchemy has essentially figured out how to integrate into the core and integrate into these different systems to create an experience that looks like a bank of america system and so you think about alchemy being a system of integration a system of record and a system of action so the the bank's business decisions are sitting inside of digital banking and then the customer whether it's a commercial customer or retail customer has made decisions about what they want automated action to take for them and that's sitting inside of alchemy as well so that's pretty that's everything that we're orchestrating when we're doing a an implementation or when we're managing the system and think about that we're doing that with 24 million consumers that are logging into a system that has to be 24 by seven less than four second response time it's pretty
easy understood there's been a lot of changes to the go-to-market strategy over the last year you referred to it in your presentation just talk about that journey and what the outcomes have been
so far it really started in 2020 when we made a decision to enter the bank market in 2020 we had two live customers in the bank market and then as we've grown through about 2022 and 2023 is when we hit product market fit where we had enough customers where we understood what capabilities did we have and did we not have and then we spent 23 through 25 filling in some of those gaps so we wound up with uh at the end of tour i'll say for today we've got over 50 bank customers under contract and we've got almost 40 bank customers live so as we enter this year we said this is the time when we should split the sales force and have a sales force that sells to credit unions and a sales force that sells to to banks so there's some other changes that we made in account management but that was really the big change and it made sense given that we're now at the point where we're no longer asking ourselves can we sell to a bank now we're saying boy how can we actually orchestrate the whole company to be able to
serve the bank market can you just remind us about the importance of a bank customer versus a a credit union customer in terms of arpu and kind of talk about that journey yeah i'll let
you talk about the arpu and the yeah so what we see between credit unions and banks is that credit unions typically have more account holders but they come they're much more retail oriented and so they come in at a little bit of a lower ARPU and then on the bank side they have a lower number of account holders even if you're comparing them on an asset size basis they may be the same size bank but have just a smaller overall customer base and they come in at a higher ARPU and that's generally driven by their commercial or business banking needs and so we end up from a land
perspective it's about the same whether it's a bank or a credit union the other dynamic i should just mention is the investment that we've made in the commercial bank offering also helps us in the credit union space about a third of our credit union customers have a commercial strategy why do they have a commercial strategy because it's a good source of deposits and so as they started going out to attract deposits they said boy i'm going to try to attract some business deposits
as well so that has helped us in the credit union market and then just on the bank channel maybe 13 of your customers are banks today just and just talk about is the the platform's always evolving but are you starting to gain that critical mass
you know as i mentioned earlier 22 to 23 i've been in small software companies a lot of my career so when you think about a startup software company you win a couple of lighthouse accounts and then somewhere when you get to about 12 to 15 accounts is when you have enough information to know what what your product is and what gaps you still need to be able to have the product that wins and that was us in about 22 23 and then we filled out those capabilities if you think about the market for us bank community bank market under 10 billion in assets it's a pretty homogenous market it's fis or fiserv cores fis or fiserv online banking the customers are making a decision to unbundle that and modernize their front end and now we have the capability to be able to replace an fis or fiserv front end in that market we have we also have now the experience to do the core integration and really importantly we have the skills inside the company to do the commercial data conversion so those were many of the things that we needed
to to continue to make progress in that market
i think it's more opportunity bob i mean if you think about i'll give you an example of this is from our customer advisory board so if you think about underwriting they would love to do more automated underwriting using ai models so they want to do that that's an opportunity for us now their headwinds are regulatory it's very interesting you go state by state so in colorado there's a state which there's a law which is an explainability law in terms of how you've made your underwriting decision But I've never read the law. What our customers tell us is it's kind of squishy. They don't know exactly what they should do, so they resist in that state. But in Texas, that doesn't exist. We've got a customer that 100% of their underwriting is going through an AI model. So I see this as a lift for us. And once again, I see it like we've got AI in our product today in terms of audience recommendation models in our data and marketing product, in terms of best next offers in our data marketing product. So those are all upside opportunities for us.
One initiative that you've had is moving some operations to India. Can you just talk about kind of where you are in that journey and the potential outcomes with that?
Yeah, we started that journey through a third party several years ago, and we were having enough, we always thought that probably 27, we would have our own captive. and we were having enough success that we decided a few years early to have our own captive. And so we started that process in 2025. We officially opened our office. This year, in 2026, we have 100-
Roughly 150 employees there.
150 employees there. So we've got whole product teams that operate there. We've got a follow the sun operations, and we'll see that as a continued source of talent for us.
Cassandra, you joined late last year. Can you just talk about some observations you have of alchemy and what surprised you the most?
Sure, I think it's some of what Alex was alluding to earlier just around how complex of an offering this is and needs to be for these financial institutions. You know, I really only came to appreciate that by getting a look behind the scenes and understanding that the product is underpinned by something like 400 different integrations, several third-party products that are deeply embedded. It's not just like a bundling strategy or a resell motion. And I haven't seen a lot of companies that are able to sustain that level of integration, so it's been really impressive. The other thing I would highlight would be true cross-sell option upsell engine that we have you know I think I've been a part of companies in my past who were striving to achieve this level of success in terms of cross-sell upsell but it really is working very well here at Alchemy and it's a big part of our growth today and our future growth strategy I think that's in a slide in our investor deck I want to say it's somewhere around $60, the $60 would be the potential. That's just our current product offering today. If our customer bought everything that we offer, it would be around a $60 revenue per user. It's tough to say where the ceiling is. You know, like we have a truck where we just continually add new product and I don't see that there's a limiter on that.
don't know the way that i would think about it is there's uh this is how we can think about it long term there's five systems that a community bank or credit union needs to run the bank and this is like a maintenance system on an airline right even if there's an economic downturn they're not going to turn off the maintenance system so you need a core system you need payments you need fraud management you need an origination system and you need digital banking can't run a bank without it so alchemy now alchemy started with one of those five we now have one and a half of those five because we have deposit origination we have brought to market loan origination so if you fast forward a couple of years and let's say we do our job well and we we're like okay we are now in market and we fully have two of the five systems that we need to run a bank or a credit union that's the point in time when alchemy would take a step back and say okay what's the next major system that we're going to add into the portfolio is that going to be something in the payment space is that going to be something in the fraud space so what cassandra was referring to is today we'll continue to bring products to market that might add some amount of arpu to the company but if you think about the big jump that you saw in terms of adding the origination platform that would be the you know us looking at the next major system that we would add yeah well first of all if I just take a Pfizer for example we work really well with their core business and it truly is a customer if y'all think about what's happened for the last five to seven years the the people that run these banks are very sophisticated people and they understand that they have to have a set of digital capabilities to be able to continue to execute and so they're really just looking at what is a five server FIS digital capabilities look like versus what does an Alchemy's digital cape so they are they are that's really the comparison they're making this decision this is way better digital capability and I have to go through a system conversion to to do it that's the decision that they're making The great thing about a replacement market is you're selling into a known budget. So we're not doubling their budget or anything like that. Sometimes we're consolidating the budget because we have the origination platform and the data marketing platform. But it truly is, I'm looking at a differentiated digital capability. When they think about commercially, they've got small businesses in their community who are coming to them and saying, I'd like to do business with you instead of Chase, but you don't have these capabilities and you need to deliver those capabilities. So that's the decision that they're making.
All right, we're gonna have to end it there. There is a breakout session, so leave it there.
Thank you.
Thank you.