Alkami Technology (ALKT) Q1 2026 earnings call transcript

Thank you, John. With me on today's call are Alex Schutman, Chief Executive Officer, and Cassandra Hudson, 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 10K entitled Risk Factors and Forward-Looking Statements.

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 in this call will be on a non-GAAP basis. We believe these measures are useful to investors in understanding 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'd like to turn the call over to Alex.

Good afternoon and thank you for joining us. We delivered a strong first quarter, achieving 29% revenue growth and over $22 million in adjusted EBITDA, both above expectations. We closed six new digital banking relationships, including two banks and three digital sales and service platform clients. In addition, we introduced our first integrated capabilities for the digital sales and service platform and a new product called Alchemy Engage.

Our first quarter performance continues to demonstrate Alchemy has the potential for long-term durable growth and increased operating leverage. Alchemy operates an attractive and predictable business model in a resilient, large, and growing market. Our target market is over 2,000 regional banks and credit unions that rely on legacy infrastructure incapable of providing a modern digital experience.

A portion of growth comes from displacing these systems. Given industry standard five- to seven-year contracts combined with stable win rates, we maintain good visibility into the long-term ARR growth that comes from new logo additions. Once on the Alchemy platform, our investments in service and reliability, the mission-critical nature of our platform, and high switching costs drive gross retention rates eight to ten points above typical SaaS companies.

High retention rates combined with clients adding users and adopting more of the platform results in reliable long-term client growth. Every five years, our clients grow by more than 100% of their original platform investment, with our 2021 through 2023 cohorts spending above two times their landing ARR, and clients 2016 and older spending close to four times their landing ARR.

Additive to the land retain and growth algorithm for Alchemy is our entry into the bank market. Four years ago, we launched an effort to use commercial banking capabilities built for large, complex credit unions to pursue market leadership serving community banks. At that time, banks represented 2% of our live online banking clients, and today banks are 13%. Over this four-year period, we tripled revenue, expanded gross margin by over 700 basis points, and improved operating leverage by more than 2,000 basis points.

Through different macroeconomic distractions and volatility in the financial services sector, Alchemy has continued to deliver by adding new clients, keeping our clients, expanding our product offering, and increasing margins. Client decision cycles create a unique characteristic for alchemy. Our online banking platform is in a replacement market with prospects on legacy platforms under long-term contracts. There are usually fewer than 300 potential clients in our target market that renew contracts in any given year.

Within this group, a portion choose not to convert given the effort and perceived risk. Among those who make a change, we consistently win 30 to 40 new clients per year. For example, the six new logos in Q1 is slightly above our historical Q1 average.

New logo growth is consistent and will not spike unless customers choose to exit contracts early or see enough value to overcome conversion resistance. This consistency is a strength, but it also means the next phase of our growth will be driven by expanding the value we deliver within each financial institution.

Increasing the value of the platform not only drives expansion, it also improves conversion, and this is why the mantle acquisition was so strategic. The Mantle acquisition adds platform functionality to encourage conversions and expands our install base.

Standalone Mantle new logo creation has been outstanding, with 61 clients added since the beginning of 2025. These are now Alchemy clients we can target to cross-sell online banking. In addition to the new logos, at our recent customer conference, we demonstrated differentiated capabilities that materially improve how financial institutions acquire and engage customers. Two weeks ago, we concluded CoLab, our annual client conference.

The conference continues to set records with over 600 customer attendees, of which 83 were prospects. Since the Mantle acquisition, we've been building deep technical connections between our online banking and origination platforms to deliver an integrated front end that enables our market to compete with megabanks and neobanks like Chase and Chime. We built this capability with seven clients as design partners, six of which have the code in production.

We demonstrated live product with real results at CoLab. In a side-by-side comparison against two leading megabanks and a digital-first fintech, we showed a complete customer journey from account opening through digital engagement. Using a live environment and real workflows, Alchemy's Digital Sales and Service Platform, or DSSP, completed that experience in under two minutes compared to an industry benchmark of five minutes and to three contestants in the three to four minute range.

DSSP has continued to perform for Alchemy. Since the beginning of 2025, we've gone from 11 to 48 clients who have all three products that make up DSSP. Over half of all new logos since Q2 of last year have been DSSP. And DSSP new logos see a 30% uplift in ARR versus our historic online banking offering. Our intent with DSSP is to increase the number of clients willing to convert, expanding our opportunity within the existing market constraints.

We have not reflected this in our long-term model, and our outlook under current new logo assumptions continues to support attractive long-term growth for Alchemy. Last quarter, we introduced a 2030 framework, and that model assumes 40% of ARR growth coming from new logo additions at numbers consistent with our historical average, and 60% of ARR growth from expanding within our client base. alchemy is evolving from a vertical application in a replacement market to a vertical platform provider that drives growth for bank and credit unions and this transaction is occurring because the market demands it historically community banking technology was defined by core providers that controlled the system of record everything else digital banking onboarding payments was built around that core.

For years, that architecture defined how financial institutions operated. That reality has changed. Digital has become the primary way customers experience their financial institutions. Our clients need technology not just to process transactions, but to sell and service financial products in a digital first world. This is the role of the digital sales and service platform, a platform that provides a long tail of growth opportunities for alchemy and positions us to become the new primary technology partner for community financial institutions. In this market, leadership will not be defined by the number of institutions served, but by generating the most economic value from each financial institution on the platform. The investments we've made to integrate our acquisitions creates the functional capabilities of Alchemy's DSSP that are winning in the market.

However, the platform investments we've made create compounding value for Alchemy and our clients. Alchemy is a single-instance, multi-tenant, industry-specialized platform, and this gives us the opportunity to provide AI capabilities our clients are requesting. For details on Alchemy's AI perspective, please review my prepared comments from our last earnings call. In the February 25th call, I spent over 50% of my time on AI and Alchemy.

Since that earnings call, I've had 39 face-to-face customer meetings, and AI was discussed in every one of them. Not one client mentioned building their own digital banking or origination platform, but every client wanted to talk about AI as an enabler for personalization, underwriting, fraud management, customer service, analytics, offer management, and more. With over 23 million account holders on our platform, we have a unique foundation to apply AI capabilities at scale. At our customer conference, we demonstrated working AI prototypes built on this platform.

These included capabilities that allow clients to tailor alchemy to their needs through prompt-driven development, use natural language to query platform data and better understand their account holders and operations, and deploy co-pilots that support both banker workflows and account holder experiences. These capabilities are powered by our platform, including our data infrastructure and telemetry from Alchemy Engage, a new product which captures real-time user interaction data across the customer journey.

Importantly, these are not conceptual demonstrations. We're actively working with a small group of clients to test these capabilities and determine the appropriate commercial models. Given our platform foundation, bringing these capabilities to market is less a technical challenge and more a question of how to package and price them effectively for our clients.

In closing, we are pleased with the integrated product capabilities we built into Alchemy's digital sales and service platform. The market reaction has been positive, and DSSP provides a foundation we can continue to build upon to differentiate alchemy. We are evolving alchemy from a system of record to a system of action, delivering measurable outcomes for our clients and increasing the value we create within each financial institution relationship.

I'm proud of our business results this quarter and grateful to more than 1,200 Alchemist who continue to get it done and do it right. I now hand the call to Cassandra to discuss our financial results.

Thank you, Alex. Our first quarter results exceeded our expectations, highlighted by strong adjusted EBITDA performance that underscores the durability of our model and the progress we're making in driving operating leverage. We continue to execute with discipline, delivering consistent growth while expanding profitability and investing strategically to support long-term value creation.

Let me start with our updated outlook. For the second quarter of 2026, we expect revenue of $128 million to $129 million, representing growth of 14.2% to 15.1%. As a reminder, our second quarter revenue outlook includes the impact of a sizable termination fee recognized in the second quarter of 2025, which represents an approximate three percentage point headwind to year-over-year growth in the quarter.

In the second quarter we also expect adjusted EBITDA of million to million or 14 margin at the midpoint This outlook incorporates the impact of our annual user conference which is reflected in our normal seasonal expense pattern For the full year, we expect revenue of $527.1 million to $530.9 million, representing growth of 18.8% to 19.7%, and adjusted EBITDA of $94.9 million to $97.9 million or 18.2% margin at the midpoint, reflecting continued operating leverage as we scale the business.

Our revenue outlook reflects several underlying assumptions consistent with what we shared last quarter. We expect continued cross-sell momentum across the platform, along with a steady cadence of ARR launches throughout the year. We also expect high single-digit ARPU growth, reflecting strong expansion within the base, partially offset by a modest moderation in user growth among existing clients. We expect a meaningful decline in termination fee revenue in 2026, which will reduce reported growth by a few percentage points.

This headwind is partially offset by the contribution from Mantle. Finally, we expect growth to moderately accelerate in the third quarter due to a more favorable year-over-year comparison. Turning to profitability, we expect a full-year non-GAAP gross margin of approximately 65%. In the back half of 2026, we expect adjusted EBITDA margin to be north of 19%, weighted toward the fourth quarter and in line with our typical seasonal pattern.

Overall, we expect approximately 500 basis points of margin expansion for the year, driven by operating leverage in the model, efficiencies from our offshore operations, and continued cost discipline while also funding targeted investments in AI that we believe will drive product innovation and long-term efficiency.

Lastly, we expect stock-based compensation to be approximately 14% of revenue for the year. As we discussed last quarter, our long-term model framework reflects what we believe are achievable targets based on the strength of our business today and the visibility provided by our long-term contracts. We continue to expect to achieve rule of 45 by 2030. From a growth perspective, we expect a gradual increase in bank new logo wins supported by our digital sales and service platform alongside continued leadership in credit unions reflecting the replacement-driven nature of our market. We also expect consistent execution in our add-on sales efforts and volume growth from existing customers, together driving ARPU expansion and contributing significantly to our long-term growth, as well as total dollar churn of approximately 2% to 3% annually, with about half associated with our digital banking clients.

Importantly, our long-term outlook does not assume incremental M&A. From a profitability standpoint, we expect non-GAAP gross margin approaching 70% over time as we improve execution on implementations and drive support efficiencies. Approximately 300 basis points of annual adjusted EBITDA margin expansion, driven by scale and continued operational improvements, particularly across R&D and G&A, and stock-based compensation declining to approximately 10% of revenue.

Turning to first quarter performance, revenue was $126.1 million, up 29% year-over-year. Subscription revenue grew 30% and represented 96% of our total revenue. As a reminder, we closed the mantle acquisition on March 17, 2025. This timing contributed approximately 14 percentage points of year-over-year growth to Q1 2026. Growth rates will become fully comparable beginning in the second quarter. We increased ARR by 22% and exited the quarter at 494 million. Importantly, we have approximately 71 million of ARR in backlog pending implementation, representing 40 new clients and roughly 1.4 million digital users. We expect the majority of this backlog to go live over the next 12 months. As Alex highlighted, we continue to see strong momentum with our digital sales and service platform.

From a financial perspective, DSSP is important because it is driving higher quality revenue across several dimensions. Clients adopting multiple components of the platform tend to have higher initial contract values, longer contract durations, and stronger retention profiles over time. This is already contributing to ARPU expansion and ARR we're seeing across the business. Additionally, as we integrate Mantle and expand our platform capabilities, we are increasing our ability to land with a broader set of products and expand within the client over time. This reinforces our land and expand model and supports the long-term durability of our revenue. We exited the quarter with 307 clients and 23 million registered users, an increase of 2.5 million users, or 12% year-over-year.

Over the past 12 months, we implemented 35 clients supporting 1.2 million digital users, and existing clients increased their digital adoption by 1.5 million users. Our contracts provide strong visibility into attrition, typically several quarters in advance. Over the past three years, we have churned less than 1% of our digital banking ARR annually. For 2026, we currently expect to churn four digital banking clients, which again represents less than 1% of ARR.

This speaks to the mission-critical nature of our platform and the strength of our long-term client relationships. Revenue per user increased to $21.46, up 9% year-over-year, driven primarily by Mantle's contribution, strong cross-sell execution, and increased user adoption among existing clients.

Remaining performance obligations were approximately $1.7 billion or 3.5 times live ARR, providing strong visibility into long-term revenue. First quarter non-GAAP gross margin was 64.4%, roughly flat year-over-year, driven by the higher database technology costs we discussed last quarter. We view these costs as temporary and expect them to decline by the end of 2026.

First quarter operating expenses were $59.4 million, or 47.1% of revenue, representing 530 basis points of year-over-year improvement realized across all areas of operating expense. Adjusted EBITDA was $22.3 million, above the high end of our expectations, with an adjusted EBITDA margin of 17.7%, an expansion of approximately 540 basis points year-over-year.

We ended the quarter with $77.6 million in cash and marketable securities. In the first quarter, our operating cash flow improved 15% year-over-year. Free cash flow was consistent with prior year, and we repaid the remaining $15 million of our revolving loan.

Finally, today we announced that the Board of Directors has approved our inaugural stock repurchase program of up to $100 million. This is an important milestone that reflects our confidence in both our long-term growth and our robust cash flow generation capabilities. We continue to believe in a disciplined and balanced approach to capital allocation that enables us to grow through additional acquisitions, delever the balance sheet through debt reduction, and opportunistically repurchase shares to deliver increased value to our shareholders.

In closing, our results this quarter reflect continued execution against our strategic priorities and the strength of our platform. We are scaling with discipline, balancing growth and profitability while investing in the capabilities that we believe will further differentiate Alchemy over time. The visibility in our model and continued momentum across the business position us to drive sustained long-term value.

With that, operator, please open the line for questions.

Sure. Yeah, you know, just to clarify, Chris, that growth acceleration will be in the third quarter in particular, and it's really driven by a more favorable year-over-year comparison, just some timing dynamics that we experienced in 2025. as it relates to the headwind in the second quarter, that's really timing of termination fee revenue. You know, we do have that headwind in every quarter this year, but it is a little bit more pronounced in the second quarter in particular, which is why I called it out on the call.

Okay. Got it. Understood.

First of all, CoLab was an amazing event. Once again, we set record in terms of number of attendees. It was great to see 83 prospects, a good balance between credit union prospects and bank prospects. A couple of comments. There is no let up in digital transformation. You know, this is a pretty big market. As I mentioned, over 2,000 credit union and bank customers that all have legacy technology.

They're all smart. They all understand what they need to do. They are a little bit captive to these long-term contract dynamics that we talked about. but just continued demand in terms of demand for digital transformation. What was really exciting to see, so for our market, and for those of you that don't bank with a regional bank or credit union, you may not really be able to appreciate this, but for our market, what's been critical for them to compete with these large money center banks and fintechs is what we would call an integrated front end, a digital front door, whatever you might want to call it. But it is the integration of digital banking and a deposit origination platform and a loan origination platform to be able to attract a customer, convert them into a customer, have them in digital banking, have them with additional products and all of that seamless and so that the customer or prospect doesn't even know that they're in multiple different products.

That has been the benchmark that these institutions have looked for, and that's what we showed from stage. So I think what I was most pleased with is the audience reaction to real technology that we showed that will make a real difference for this market.

Yeah, thanks. Once again, let's talk about the difference between the bank market and the credit union market. And in a previous earnings call, I've got the specific numbers. So I'm going to give you the round numbers. I know we've got the specific numbers. But in the credit union market, it's probably in the mid 40%, 45% of the customers that have an online banking application that is supplied to them from their core provider.

And in the bank market, it's been north of 75%. So that's the part that we're beginning to see unwind. I actually talked to a prospect at CoLab who is going to pay off four years of their remaining digital banking contract to move to a different digital banking platform from their core. And I asked them, I said, this is one of the first times that I've ever heard this. Why are you doing this? And they said, in our market, we have to compete with Wells Fargo and KeyBank. And we're at the point where our digital capabilities are insufficient. and if we don make this change it going to impact the business of the bank So you starting to see that demand push create these conversions But the flip side of that is the more customers that see somebody come onto a platform like Alchemy, successfully go through the conversion, successfully bring their customers on board, then they're willing to make the change.

It's ultimately a decision of value versus risk. And that's why the integration of the data marketing platform and the onboarding platform and digital banking is so critical, because when a bank sees the outcome of speed to bringing on a new customer, reduced cost to bringing on a new customer, increased speed to cross-sell, they start to have the conviction to make the change.

Sure. Thanks for the question. You know, those costs, are really defense-related in nature. We do expect to incur additional costs related to this item. Obviously, it's difficult for us to predict how much they will be, though I don't think that we're going to be scaling at $2.8 million every quarter from here on out. I think we saw a little bit of a higher cost in Q1, and I would expect those to moderate from here on out.

No problem.

I guess banks versus credit unions, it's pretty, I would say, evenly split in terms of their size. And, you know, right now we have 13 banks in the backlog, and the rest would be credit unions.

I mean, in the past, you can kind of think of the trend as roughly half and half new versus existing. In Q1 in particular, just kind of flipping back to my script, we implemented 1.2 million digital users over the past 12 months, and then 1.5 million related to existing clients, a little bit more weighted to existing clients over the past year here.

I mean, I think they continue to track very well, right? You know, with all of our products, there is a bit of a cyclical nature to the sales cycle. You know, for us, Q1, you know, tends to be a bit of a lighter quarter and Q4, tends to be our strongest quarter. I think we continued to see really good performance in Q1 for Mantle coming off of a really record 2025.

Yeah, I would just point back to the reason why we're pleased is you go back to beginning of 2025 and our DSSP clients, so that's clients that have acquired Mantle, have gone from 11 to 48, and in the same period of time, standalone Mantle new logo clients of 61. So, you know, you figure that's a five-quarter period of time. You know, I'm the ever-optimistic CEO, but I consider that to be outstanding performance to make an acquisition like that.

Just take a step back. So the acquisition closed in Q1, right? And so we needed to integrate the two companies and in that period of time deliver that kind of both new logo and cross-sell performance at the same time as integrating the technologies together into one experience that unites the front end of digital banking and origination. I'm frankly just super proud of the team for what they've done.

Yeah, you know, what our customers are asking for is historically the digital part of the financial institution was somewhat passive, right? It's relying on the account holder to know what they want to do and then come in and take action. But as we all understand how systems have changed and how we interact with systems, now what our institutions are asking for is you have all of this data. You've got transactional data. You've got telemetry data.

You've got core transactional data. I want you to start predicting things that we want the account holder to do. and then I want you to notify the account holder and ask them to do that. So that's what I mean in terms of making a shift from a system of record to using the data and the analytics capabilities that we have and the predictive capabilities that we have.

Now I want you to tell me to take an action or tell our account holders to take an action.

I noticed that I know that, so to give you an example, I know that at this time of the month, every single month, your balance starts to drop. so I'm going to reach out to you and recommend an action for you to take so that you don't get into a bad financial situation. So that's the kind of thing that I'm talking about when I say move from a system of record to a system of action.

Yeah, thanks for the question. Our pipeline remains balanced. It's pretty evenly split between banks and credit unions. And so for us, the transition has been effective. It allows us more specialization in the bank market, and we remain happy that we did it.

Got it. That's helpful. And then, you know, obviously everyone's thinking through sort of, you know, more efficient organizational structure. We think about AI development, et cetera. I know you're probably pretty heavy users of this internally, but is there any structural changes or process change that need to be made as a result of just increases in model productivity, things like that to consider? Or is it more just kind of just product velocity output increasing on that side of things? Thank you.

I mean, you could imagine that we're using every single model provider in all parts of the organization right now. We're not yet at the point where we're ready to come to our investors and say, this is the benchmark productivity that we're going to run after. I think the biggest thing that we're seeing in terms of change is the front end of the software development lifecycle. If you think about DevOps, DevOps did a lot for us in the back end of the software development lifecycle.

How we would test code, how we would release code, how we would support code. That's where a lot of that transformation occurred. A lot of the transformation that we're seeing right now is just the speed in the front end of the software development lifecycle and how quickly we go from what used to be something that was in a PRD that is no longer in a document at all and is now a fully functional prototype that we're reviewing with a client instead of having conversations through PowerPoint or through documents. And that's where I see a lot of, frankly, a lot of promise for the organization. And then within the support organizations, you know, we've fully wired the company from a data perspective for access for all of the support organizations to try to speed up the time at which it takes to respond to customers.

And then ultimately the cost that it takes to respond to customers. So I'm probably like every other software executive right now. We're watching our companies transform in months what we used to see happen in years. It's actually a pretty fun and amazing being a software company.

No worries. A couple points, and I'll kind of talk about top line and EBITDA separately. So on revenue, the acceleration is very specific to Q3, and it is due to a more favorable year-over-year comparison. So there are some timing elements in the prior year that's driving that acceleration. You know, if you just kind of think about the nature of our model, right, it's very predictable.

We have a steady amount of error launches happening this year, very consistent dynamics from existing customer and ARPU growth. So just given that, you know, I think that kind of, you know, you can calculate what that implies from a revenue perspective for our model.

Can I just say one thing, Andrew, because you followed us for a while? I'm not trying to be coy, but I would just really encourage you to go back and look at the post-Q2 commentary from last year, where we were very specific and said, we actually took down Q3 last year because we had a termination fee that accelerated into Q2. And that's exactly what Cassandra's talking about, right? That's the exact, it's no more complicated than that.

For adjusted EBITDA, we typically see adjusted EBITDA builds each quarter throughout the year. So Q4 typically is the highest, both obviously in terms of dollars, but more importantly, the EBITDA margin. And that trend is back to continue.

But we got to give you props I trying to get Sandra to go ahead and give you a Q3 guide Exactly You know I always pushing the envelope Alex I appreciate it Thanks for all the comments guys Helpful.

No problem.

For sure. It's really, I would call it, let's call it product, technology, and skills. So from a skills perspective, what we've had to bring into the organization are people that understand how to do commercial data conversion. So converting a complex business account and the data in the complex business account into Alchemy is very different than converting the data from a retail account.

And that can be account data, payment data. So all of that data set is very different bank versus retail. From a product perspective, I think what we've mentioned over several calls is we've got a three-phase treasury management build-out. And the first phase of our treasury management build-out was to put ourselves in a position where we could effectively move a bank that was on a legacy core providers platform into Alchemy. And so that's the work that we've been doing over the last 12 months. And I think we largely finish up that work at the end of this quarter. So there's capability build out that we have to do. And then the cores themselves, bank cores operate more from a batch perspective.

Credit unions cores operate more from a real-time perspective. So the core integration themselves and the way that we have to have Alchemy, which is a data-hungry application. that's data hungry because we want to create a great user experience. You create a great user experience by having all the information in front of the user. And so we've had to do some things with the way that Alchemy interacts with the bank cores to make sure that the clients get good performance for their customers. So three big differences, the skills that we have to have in the organization, the application functionality that we have to create, and then the technical integration to the cores themselves.

Well, I mean, one of the big benefits of DSSP is really around, you know, obviously we're selling all three products at once, and we typically see about a 30% higher ARPU on our DSSP deals as compared to a traditional new logo. So that would be one, you know, and that lends itself naturally to higher ARR, you know, especially over time as these banks and credit unions grow with their user base. So, you know, very, very profitable customers for us. I would say consistent unit economics from implementation cost perspective. You know, we have to implement all three products and, you know, we kind of do that over the first 12 months term. But otherwise, I would say the dynamics there are relatively consistent.

And the part that is untested, but we have, you know, optimism about is the, what we've delivered so far is just the first phase of functionality of the digital sales and service platform. And that's that, you know, there's a couple of use cases that I shared, but we're not going to stop building. And so what I get excited about is the opportunity to build new products that we have an opportunity to charge for, assuming that there's value in them, to bring to the clients. And then from my perspective, those would go into the digital sales and service platform at a lower cost of sale in terms of what the customer is buying. But remember, what we just shared is 11 to 48 customers in five quarters, so there's not yet a long track record where we're able to say this is the change in the unit economics.

Thank you, Alex and Cassandra.

I got to tell you, completing an acquisition and then within a year having that kind of cross sell, that blew me away in terms of expectations. So I'm pleasantly surprised.

I actually, we don't have the data yet, but I actually think, if you think about what we're showing a client in terms of the experience that they have bringing on a customer, you get two kind of things folks are looking for. Can I attract a new customer and can I sell more products? And so having this integrated front end, when people see it and they know how hard they've been trying to deliver it for the last 20 years across a set of 10 different technologies, my expectation is that the sell cycle is not going to be any longer.

I don't want to predict anything. To me, I would hope it's shorter, but it's still governed by the market dynamics that we talked about, right? This is the market dynamics are the long-term contracts. So that governs the sales cycle more than anything else, really.

Got it. Got it. That makes a ton of sense.

Yeah, let me just – I'm curious – oh, sorry, please.

We don't have this in our model. So remember, the most important thing for us is not can we win against a competitor? The most important thing for us is can we increase the number of people that decide to convert off their legacy technology? So this is not included in our model at all, but what I'm hoping is that DSSP creates enough value so that some of those folks that didn't want to go through the conversion effort decide to go through the conversion effort, and we unlock more opportunities within the market constraint that we have.

Thanks for the question, Sackett. You know, what I would point to is certainly there's gross margin benefit as we achieve higher levels of scale. And, you know, more and more of our customers have been on the platform for quite some time now. So that does lend itself to higher gross margin. And, you know, upon renewal, we typically see customers increase their total contract value with us. They might buy additional product and, you know, obviously continue to grow their user bases. So those benefit us, and we see that in increased ARPU as well as, you know, our NRR trends.

So I guess those would be kind of the three areas I would point to in terms of the renewal impact. We don't have any real big concentrations in any one year where we have an outsized number of renewals. It's pretty evenly spread just given how long our business has been humming here.

Yeah, let me make sure that I've got some clarity. The product that we announced is Alchemy Engage, and that's the product that is collecting the account holder telemetry information. The reference to Code Studio, if you look at my prepared remarks, what I shared was that we showed a prototype technology demonstration. That is not a product that we have decided to release yet, and it's for all the reasons that you framed. We had it in our innovation studio. People loved working with it. But the two things that we're trying to work out really with any of these AI products are more the commercial terms than necessarily the technical terms. It's do we price it simply and then take the cost risk?

I'm pretty sure if Cassandra and I showed up and said tokens ate our profit guide, y'all wouldn't give us a pass. So it's do we price simply and then take the cost risk or do we introduce a usage metric that's not a usage metric that the client has any history with? And so it's hard for them to model. So, you know, I actually mentioned four different prototypes that we showed. You talked about Code Studio. That was just one of the four. That's what we're in deep discovery with our customers right now. We have a handful that are using each one of the prototypes to try to understand what the most effective commercial terms are for the product.

Given the platform that we have, the complication for us is not really – I don't want to minimize how hard it is to build a new product, but it's not really can we build AI capabilities. It's really how do we monetize these AI capabilities in a way that it's easy for the customer to buy and it's safe for the company from a profitability perspective.

Well, again, I don't mean to come across as snarky when I say this. That's not my intent. But like all of our holy grail is to get more revenue and have it cost us less to deliver it. So that's what we're really looking at all the time. We're not yet ready to change the long-term model that Cassandra's talked about. So Cassandra talked about a long-term model that guides the rule of 45.

If and when we have enough evidence within our operations, either in terms of revenue lift or in terms of cost efficiency, to change that model, then we'll announce that we're changing the model and we'll give you the reasons why we're changing the model. But we don't have enough evidence yet to change that longer-term model.