Good afternoon, ladies and gentlemen. And welcome to the Alkami Technology Fourth Quarter 2024 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, February 27, 2025. I'd like to turn the conference over to Steve Calk, Vice President of Investor Relations. Steve, please go ahead.

Thank you, Alan. 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 in the section in our latest 10-K. Statements made during the call are being made as of today and we undertake no obligation to update or revise these 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 the comparable GAAP financial measures can be found in our earnings press release and in our filings with the SEC. Now I'll turn the call over to Alex.

Thank you, Steve. Good afternoon and thank you all for joining us. I'm pleased to report another great quarter of financial results for Alkami, which contributed to an outstanding full-year performance. During the fourth quarter of 2024, Alkami grew revenue 26% and generated over $10 million in adjusted EBITDA. In addition, we ended the quarter with 20 million users on the Alkami Platform and that is up 2.5 million users compared to the prior year. For the full year of 2024, we delivered revenue growth of 26%, adjusted EBITDA margin expansion of 900 basis points and improved operating cash flow by over $36 million. We are proud of these results as our execution continues to track the multiyear revenue and profit targets Bryan and I provided at the beginning of 2023. I'd like to make a few comments on the quarter and the year, and then I'll discuss our plans to acquire MANTL. In our fourth quarter 2021 earnings call, we outlined a five-point plan to drive our desired long-term business outcomes. First, we would succeed in the bank market as we had in the credit union market. Second, we would leverage add-on sales to drive growth. Third, we would invest in our platform for efficiency and differentiation. Fourth, we would become a destination company for talent. And fifth, acquisitions would be part of our growth equation. Alkami's current business results are an outcome of excellent progress on these five business objectives. At the end of 2024, we had 42 banks under contract, including 23 live on the Alkami Platform and 19 in our backlog. This compares to eight banks on our platform at the end of 2021. We remained focused on the credit union market as we were investing in the bank market. And in 2024, we became the…

Thanks, Alex, and good afternoon, everyone. In 2024, we continue to drive industry-leading revenue growth and outperform on our profitability goals. For the year, we achieved total revenue of $333.8 million, representing year-over-year growth of 26% and improved adjusted EBITDA to $26.9 million, compared to a loss of $1.6 million in 2023. Subscription revenue grew 26.5% in 2024 and represented almost 96% of total revenue. Our fourth quarter results were a strong finish to the year, and we are entering 2025 with good momentum. For the fourth quarter of 2024, we achieved revenue of $89.7 million, representing growth of 26%. Subscription revenue grew 25% and represented 96% of total revenue. We increased ARR by 22% and exited the quarter at $356 million. We currently have approximately $56.5 million of ARR in backlog for implementation, the majority of which will occur over the next 12 months. Included in our backlog are 39 new clients, representing 1.3 million digital users. We exited the quarter with 272 clients and 20 million registered users on our Digital Banking Platform, representing registered user growth of approximately $2.5 million or 14% compared to last year. Over the last 12 months, we implemented 38 financial institutions supporting 1.2 million digital users. In addition, our existing clients increased their digital user adoption by 1.3 million users. As a reminder, because of the long-term nature of our contracts, we have three to four quarters of visibility into upcoming client attrition. During 2024, we churned less than 1% of our digital banking ARR. Over the long term, we modeled digital banking ARR churn at 2% to 3% per year, but expect to do much better in 2025. Currently, we expect to churn four clients in 2025, representing 175,000 users and less than 1% of ARR. We ended the quarter with…

Thank you. [Operator Instructions] Your first question comes from Andrew Schmidt of Citi. Your line is already open.

Hi. This is David Wielazinski [ph] on for Andrew Schmidt. Thank you for taking my questions. How does MANTL compare with your existing account opening solutions? And I was wondering if you could give more details on the potential impact of the cross-sell opportunity there?

Thank you for the question. The current account opening offering that we have is digital only for just one or two deposit types. And as we got into that market and listened to what our customers were trying to do, they really needed to be able to have an account opening solution that could operate in digital, could operate in call centers, in branch and even if you think about commercial banking with a relationship manager. And they needed to have the ability to support a whole lot more different types of products and specialty account structures, retirement accounts, health savings accounts, trust accounts, escrow accounts, lots of different types of account roles, whether it would be beneficiary, custodian, guardian. And none of those were things that we were offering with our current product. And then I would say because of what I would call more of a normalization of interest rates, we all went through about 15 years to 20 years of almost zero interest rates. And now that interest rates are what you might consider a little bit more normal, the ability to attract deposits, as well as make loans has become critical to the financial institutions. So in summary, our current product did a few things, did a few things well, but it did not meet all of the needs of the market and that's what the MANTL product does.

Thank you for that. And then what is embedded in the 2025 outlook between the user growth and ARPU expansion? And could there be more of a skew towards user growth, assuming a pickup in M&A activity?

Yeah. The guidance that we've provided for 2025, I mean, it's in line with what we have been providing on more of our longer term guidance and very consistent with 2024. So user growth -- organic user growth, so excluding the MANTL acquisition, we would expect user growth in that 14% to 15% range, which is very consistent with 2024. ARPU expansion will be in a 6% to 8% range. Again, very consistent with 2024. What we haven't yet determined yet, and we will before once we close the MANTL acquisition and once we move into providing more combined guidance on a go-forward basis is consideration of the MANTL client base, the incremental users that will come with the MANTL client base and the ARPU. So let me give you a couple of examples. MANTL today has 112 clients under contract and those clients carry an average ARPU between $5 and $6. So it's a nice ARPU add, but they're going to bring about 8 million digital users to Alkami, and there's very little overlap, as Alex commented on in his prepared comments, between the two client bases. So they're very complimentary in nature. The MANTL client base is 70% banks and 30% credit unions. The Alkami client base is 90% credit unions and 10% banks at the moment. So nice complimentary to each -- to one another, but with very little overlap. So what you'll ultimately find is our user count will jump to 28 million, 29 million, but you're adding those users at a $5, $6 ARPU.

Very clear. Thank you.

Your next question comes from Saket Kalia of Barclays. Your line is already open.

Hey, team. This is Ryan Parley [ph] on for Saket tonight. Thanks for taking the question.

Hi.

Maybe just to start on the MANTL deal, certainly interesting. I'm curious what you see in terms of the competitive environment in this type of market. Is it similar to your core digital banking space where it's a lot of the core providers that you might be running up against or would it be other competitors that you might expect to go more head-to-head with with this type of acquisition?

There's really -- when we talk with our clients, there's really three alternatives that they pursue in trying to deliver this type of capability to their customers or their members. One is they've got a very outdated capability from a core provider. The second is there are some smaller players that are in the market that they look at. And many of them also tried to write some of their own software to try to stitch together the experience. What we liked about MANTL is that with -- what a MANTL customer experiences, and this is the design of their product, the way that they've thought about the user experience across the end-to-end process, and the fact that they're core agnostic and they've built technology that allows them to integrate very well with over 20 different core systems. So a median retail account opening experience within MANTL is 5 minutes compared with 15 minutes in the industry. And a median business account opening experience in MANTL is 8 minutes compared with three and a half hours in the industry. And 85% of the applications receive an automated decision. So that's what we were looking at when we got excited about MANTL is yes, there's some other small players. Yes, there's some legacy core technology. Yes, there's customers that have tried to write their own. But the outcomes that the MANTL technology delivers is far superior to anything else that was on the market.

Got it. Super helpful. Bryan, maybe a follow-up for you. I think in the press release you mentioned that while there's an EBITDA loss for MANTL this year, you expect it to be EBITDA accretive in fiscal 2026. Just wondering, are you including any expense synergies from this deal at all or is that just purely driven by sort of revenue synergies and cross-sell, that sort of thing? Thanks.

So as it relates to revenue synergies, we're really expecting those to occur or be more evident in 2026 and primarily in the back half of 2026. As I mentioned in the previous question from Dave at Citi, the client bases are very complimentary to one another, so there is going to be a nice opportunity for revenue synergy. As it relates to expense synergies, the MANTL, scaling the MANTL operation, they'll be able to leverage things such as G&A within Alkami. At some point, we'll be able to leverage the Global Capabilities Center that we're developing in 2025 in India. So it's more about helping MANTL scale more efficiently than it is having cost-cutting synergies on day one, because keep in mind, MANTL is a fast-growing business. We do not want to do anything to upset the growth trajectory that they're currently experiencing. We're here to identify synergies from a go-to-market perspective and even drive further revenue growth.

Very helpful. Thanks, guys.

Your next question comes from Patrick Walravens of Citibank (sic) [Citizens JMP]. Your line is already open.

Oh! Great. Thank you. Citizens. Congratulations, you guys. Alex, I would love to hear sort of the background to the deal. When did you first meet them? How did the process unfold? How did we get to this transaction?

Well, the two companies have known about each other since 2019. So we've known them and they've known us, and we've stayed in relationship for quite a while. And I would characterize this as a deal that evolved through understanding each other's culture, understanding the people that were running their company and the quality of people that were running their company, and also listening to our customers. Pat, last year, we had our Customer Advisory Board together in June at a customer location outside of Denver, Colorado. And we treat that Customer Advisory Board very strategically. We speak with them not about features and functions, but they help us guide the long-term future of the company. And we were reviewing several different options that Alkami could invest in, fraud detection, continued investment in our data platform and several other areas. And at the end, they kind of huddled and came back to us and said, there's something that's a bigger issue than us. We've all got these legacy systems. We've got different underwriting platforms, things like that. But what we really need is we need a great end-to-end onboarding experience for our members to both attract members so we can get deposits and then also cross-sell other products to our customers or our members. So, Alkami, what we really need you to do is deliver to us that great end-to-end experience. So, Pat, we've known each other for a long time. We've respected each other for a long time. The market need was really speaking to us wanting to do something in this space. And then, as I said, we've just spent a lot of time getting to know each other, getting to know their management team. One of the things we really cherish is the ability for our culture to treat our customers as the North Star. And that was evident in all the investigation that we did with MANTL. So, Pat, probably more than you want to know, but I would characterize this as we've known each other for a long time, we knew there was a strategic need in the market and we got to know each other for a period of many months to make sure that this was the right thing to do.

And Pat, I'll add a couple more comments to this. I mean, strategically, I mean, taking what we view as the absolute best asset in space, the most disruptive, elegant, digital experience as it relates to onboarding, pairing that with similar accolades as it relates to the Digital Banking Platform, and then finally combining that with what we view as the best marketing and data analytics solution, I mean, that creates a network effect, a flywheel effect in the revenue of all of those offerings that we believe is very powerful. And then when it's just a front end to back end, digital twin to the branch and delivers that experience, there is no other Digital Banking Platform or technology provider in the space that can deliver the front to back offering that I just described. And so we've been watching MANTL for a long time. And MANTL, it's always when it's the right time to do an acquisition of this type. And MANTL was at a point to where, you know, raising capital would be an alternative or potentially finding a strategic partner. And for all the reasons that Alex just described, finding a home at Alkami really was the best decision that they felt that they could come to. And so after years of talking to them and staying close to them, it all manifested, late 2024, and here we are today and we're announcing what we're extremely excited about, which is, the future of Alkami and really the very early beginnings of building a $1 billion revenue company over the next four years to five years.

All right. That's super helpful. Thank you both.

Your next question comes from Chris Kennedy of William Blair. Your line is already open.

Good afternoon and thanks for all of the details. Just wanted to focus a little bit. It seems like MANTL has a really good presence within banks and doing kind of business banking activities. Just talk about kind of how that dynamic played into the acquisition.

It played in a couple of different ways. As you know, we're focused on the bank market and being able to pair the onboarding and account opening platform that serves both consumer and business and all sorts of business types, right? Whether its sole proprietorship, general partnerships, non-profits, trust, estates. So that capability was really interesting to us in terms of Alkami's long-term strategic direction where we've been investing in the bank market. But the other thing that's been really interesting is, probably 45% of the credit unions that I meet with have a commercial strategy. And so this also fits into us being able to bring MANTL into the credit union install base for Alkami, not just because they've got a good consumer product, but because they've got a good business product as well. So it was really kind of both of those things. One, it matches our strategy of investing in the bank market. But number two, as Bryan said, there's virtually no overlap between the two companies from a customer base. There's probably less than 10 accounts. And because of some of the transformation that's happening in the credit union market, the coverage that MANTL has for both consumer and business was really attractive as we think about the potential for cross-sell in the future.

Great. Thank you for that. And then I guess just another quick one on MANTL. I know the question was asked earlier, but the prospects for EBITDA to go from a negative to a positive. Can you just double-click on that again? Thank you.

Yeah. Chris, that's primarily driven by just revenue scale. I mean, MANTL exiting 2025 with $60 million of revenue under contract and that's growing north of 30%. So they're still relatively a small business that's becoming a larger business with a very fast growth trajectory. And it's Alkami relying -- leaning on Alkami and Alkami's go-to-market, Alkami's R&D, Alkami's G&A, those areas to drive future profitability scale for MANTL. So it's really the two companies working together and Alkami being able or rather MANTL being able to lean on Alkami for those areas within its business to help it scale.

I mean, one of the things that many of the analysts that both Bryan and I have met with for many quarters have asked us about acquisitions. And we said, when we do an acquisition, it will be strategic and it will also fit into the Alkami business model. And so the thing that we do like about MANTL, MANTL is a growth company. This is not a situation where, as Bryan said earlier, we want to cut a lot of expense to figure out, fit them into some model. This is a situation where they're a well-run company that can leverage some things within Alkami so that, as Bryan mentioned, in 2026, we see this as accretive to our business.

Understood. Thanks a lot.

Yeah. But Chris, as you look out over a multiyear period, think about, you should think about MANTL being a couple of points of incremental organic growth. You should think about MANTL being accretive to gross margin. And MANTL will be a drag of 1 point to 2 points on EBITDA margin for the next two years to three years, and then reaching and conforming to an Alkami EBITDA margin profile beyond that.

Understood. Very clear. Thank you.

Your next question comes from Adam Hotchkiss of Goldman Sachs. Your line is already open.

Great. Thanks so much for taking the questions. I just want to follow up on the last question around MANTL's existing base. When you were evaluating MANTL, to what degree do you think that you're going to be able to cross-sell the Alkami Platform into MANTL's customers? I know these contracts are a little bit longer than other industries and there may be a little bit less visibility into that. But what comfort do you have over the next couple of years that you might see some incremental success or accelerated bank traction due to that? Thanks so much.

The existing MANTL client-based segment is very similar to Alkami. And what I mean by that is financial institutions with assets between $500 million and $10 billion, that represents a significant percentage of the MANTL client base and it's also similar to Alkami. Our sweet spot where we have found the greatest penetration has been assets in the size of $500 million to $10 billion for financial institutions. So there's no reason to expect that we would not have the ability to cross-sell the Alkami Digital Banking Platform into the MANTL base or to sell the MANTL solution and offering into the Alkami installed base. So we think it's very complementary. We feel that both companies have had significant success in the same area and segmentation of the market.

Okay. That's really clear. Thanks. And then just on the renewal pull-forward you mentioned, just curious if that impacts your cross-seller expansion opportunities into 2025 and how you would typically see a year after a pull-forward of renewals be impacted from a growth perspective? Thanks so much.

We're having success cross-selling whether it's a time for a renewal or not. So our client sales team has really begun to gain momentum and has a pretty strong ability to cross-sell into a client whether it's one year after signing the contract and the client just went live or if it's five years, six years later at the point of renewal. So we would expect that our client sales team to continue to contribute in that 45% plus to total contract value sold.

Very clear. Thanks so much.

Your next question comes from Alice Smith of JPMorgan. Your line is already open.

Great. Thank you so much for taking our questions. So first I was hoping to start on the gross profit margin line. You've had pretty stable gross profit margin expansion since at least 2020 and I think you mentioned that MANTL should be gross profit margin accretive in 2025. Can you remind us your thinking about longer term margin trajectory for the gross profit margin line? Thank you.

So what we've provided is by 2026 the Alkami core business will be at 65% gross margin. We gave that guidance, that longer term guide about three years ago. We're a bit ahead of that. We'll exit 2025 at a run rate of 65% and you should expect MANTL to be accretive 100 basis points.

That's very helpful. Thank you. And as we think through the other OpEx line items and the EBITDA deficit that MANTL causes for the first year, how would you allocate those costs roughly?

Well, let's just talk about the EBITDA loss. So you should think about $5 million of EBITDA loss occurring over the second, third and fourth quarters of 2025, $2 million in the second quarter, $2 million in the third quarter and around the $1 million in the fourth quarter. From a gross margin perspective, MANTL has been able to achieve around a 75% gross margin. The OpEx categories…

Fair enough…

The OpEx categories from a contribution by category, they're a little bit heavier on sales and marketing than Alkami is, but they align pretty closely to how Alkami aligns.

Makes a lot of sense. Thanks so much.

Your next question comes from Jeff Van Rhee of Craig-Hallum Capital Group. Your line is already open.

Hey, guys. Congrats on the quarter. This is Daniel on for Jeff. Just on the cross-sell motion, how that will look, if I'm understanding correctly, and the Alkami account opening offering currently doesn't cover some of the needs that the customers have, such that a lot of them will maybe have some other offering in place, what does the Alkami base have right now for the most part and so what would that be that you'd be displacing as you're coming in with MANTL to cross-sell?

Yes. As I said earlier, the customer base will have a range of technologies that they're trying to use to accomplish this. They might have -- and given Alkami's product -- the product that we have today, given our product penetration and our customer base, the majority of our customers will have the following scenario as opposed to an Alkami product. They'll either be trying to use something off of their legacy core, they'll be using another third-party product, but in a lot of cases, they will have tried to write some of their own software to stitch together this process. Some of the things that are really unique about MANTL is how they've streamlined the process and embedded automated KYC as an example. When a customer sees this process and how it manifests itself from a user experience, it's just a very different experience than they're able to deliver today. So I would anticipate that our client sales team that covers our existing bank customers and our existing credit union customers will be -- after closure, will be bringing the MANTL product to any or all of our customers for the potential of cross-sell. There's not really a customer that we have that we would not bring the MANTL product to from a cross-sell perspective.

Okay. That's helpful. And then just on the flip side, on the impact on the MANTL side, just as they work with a lot of other people in the marketplace, like I believe they're part of the Q2 marketplace, how will those relationships, if at all, be impacted after getting acquired by you guys? Is there any inherent churn contemplated there?

We would hope that they would continue to be successful in all the markets that they serve. That's our goal. Our goal would not be to do anything that would truncate their success in any market that they're serving. That said, you could imagine that our product teams have already had a lot of great ideas. One of the things that Bryan talked about earlier, I talked about in my prepared remarks, is if you think about having transactional data that you're using in the onboarding process, and then that onboarding process is showing up natively in the digital banking experience, that's a really attractive design for a client. So we're not going to do anything like that in any market, but you would imagine that we've got a lot of product ideas in terms of how we integrate digital banking with MANTL with our data and marketing platform.

Congrats.

There are no further questions at this time. So this concludes today's conference call. Thank you for your participation and you may now disconnect.