Welcome to the Second Quarter 2021 Alkami Technology F inancial Results Conference Call. My name is Vanessa. I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to your host, Rhett Butler, Vice President, Investor Relations.
Thank you, Vanessa. Good afternoon, and welcome to Alkami's earnings call for the second quarter ended June 30, 2021. With me on today's call are Mike Hansen, Alkami's Chief Executive Officer, Stephen Bohanon, Alkami's Co-founder and Chief Strategy and Sales Officer, and Bryan Hill, Alkami's Chief Financial Officer. During the course of today's conference call, we may make forward-looking statements, including statements regarding trends, strategies, and the anticipated performance of the company. These forward-looking statements are based on management's current views and expectations and are subject to various risks and uncertainties, including risks related to our operating and financial performance. Our actual results may differ materially from those contemplated by these forward-looking statements, and we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct.
Please refer to the risk factors included in our filings with the Securities and Exchange Commission, which are available on our investor relations website, and the press release distributed earlier this afternoon regarding the financial results we will discuss today to review important factors that could cause actual results to differ materially from those reflected in the forward-looking statements. Forward-looking statements made during the call are being made as of today, August 4th, 2021, based on the facts available to us today, we undertake no obligation to update or revise any forward-looking statements. Also, unless otherwise stated, all financial measures discussed on this call will be on a non-GAAP basis because we believe these measures to be useful to investors in the understanding of our financial results.
A reconciliation of each comparable GAAP metric can be found in today's earnings release, which is available on our website, investors.alkami.com, and as an exhibit to the Form 8-K furnished with the SEC today. With that, thank you all for joining us on the call, and I'll turn it over to Mike.
Thank you, Rhett. Thank you to everyone joining us today for our second earnings call. Since we were here in early May, the team of over 640 Alkamists and our partners have continued to be hard at work executing against our mission, and we are very excited to be sharing the results today. While Bryan will get more into the details momentarily, or as you may have seen in the press release a bit ago, financial performance during the second quarter was again solid across all of our metrics. Additionally, during the quarter, we continued to advance the important aspects of our business, including the go-to-market, product, operational, technical, compliance, security, and even people aspects of our business.
Now about 10 months in, we continue to be on track with our integration and synergy objectives with our ACH Alert acquisition, with some news to share later in the call. As we look at our end market, the community and the regional financial institutions in the U.S., we think the digital transformation of financial services is continuing to accelerate. In our view, a number of factors contribute to this acceleration. First, we continue to see significant market investments in fintech and financial services offerings and companies. These investments in the form of IPOs and private equity and venture capital transactions are powering existing and new players to create or scale targeted digital financial products and even offerings, including cryptocurrency for consumers and businesses alike. There are even frequent examples of these investments resulting in M&A activity in this space as well.
Further, the big tech companies and major retailers also remain active, expanding their digital capabilities in the financial services space from digitally provisioned credit cards and prepaid cards to checking accounts to buy now, pay later offers, and yes, even crypto. Of course, the mega banks are continuing to up the ante in their own right with just one of them spending approximately $11 billion on technology annually. As a result of these factors, we believe our end market continues to move at a relentlessly accelerating pace, reflected by the interest of so many players to digitally expand or redefine or disintermediate financial services for consumers and businesses in the U.S.
This competitive landscape for financial services requires the financial institutions squarely in Alkami's addressable market to move at a speed and certainty to identify and seize their strategic opportunities enabled by the technology and concurrently identify and respond to the strategic threats from competitors that have often greater resources. It's this dynamic landscape of our end market that continues to propel market demand for Alkami's digital platform, one that continues to advance at speed and allows our clients to innovate quickly and compete effectively against others with many times their scale. We continue to believe the battle for relevance and success in this digitally transforming market for the community and regional bank or credit union has never been more important. As a bit more color on this transformation, in June, we solicited feedback from 150 leaders in regional and community financial institutions that had influence over their digital banking decisions.
Two-thirds of these respondents were senior executives within their institutions. When asked to identify their institution's greatest risk over the next 18 months, the risk titled changing technology landscape was cited more often than any other risk listed, including the risks of interest rate environment, cyber threats, and uncertain regulatory environment. We believe that the digitally focused community and regional financial institutions aware of this risk and armed with the right tools to complement their own unique capabilities, have thrived and can continue to thrive in this digital world. To continue to do so, they will increasingly need innovation and extensible platforms like Alkami that can deliver digital innovation at speed and scale to power their strategies over the long term.
In terms of results from our community and regional financial institution clients, we have seen them continue to perform exceptionally well in terms of supporting their employees, consumers, businesses, and communities during these times. Stories and happenings abound of FIs going the extra mile, and it's kudos to our clients and their teams for what they have done and how they've done it. Their success is equally evident in their business results with year-over-year asset and deposit growth well above the industry average, and digital user growth of our clients exceeding 17%. To give you an idea of how our digital banking platform helps power the results of a financial institution, I'll take a couple of minutes to outline the results of a client through a specific case study.
The case study is from a strong West Coast financial institution in a very competitive market with over 100,000 digital users and over $2 billion in assets. We completed the implementation and launched them during the second quarter of last year with 14 products. The financial institution had specific strategic needs they were looking to Alkami to help with. Naturally, the main focuses were around improving their end-user experience, their end-user sentiment or satisfaction for their app, let's say app store ratings, their overall end-user satisfaction of the digital channel, NPS scores, their digital user growth, and their mobile banking penetration. I'll touch a bit on each of those. First, after researching top-tier financial institutions and finding their user sentiment averaged 4.8, our client set a stretch goal of achieving a 4.9 rating.
Prior to converting to the Alkami platform, they had an iOS rating of about 2.9 and Google rating of about 4.3 for a weighted average of about 3.0. Post-conversion to Alkami, their app rating skyrocketed to an iOS rating of 4.9 with nearly 13,000 reviews and a Google rating of 4.9 with nearly 1,800 reviews for a weighted average of about 4.9 stars. This equates to a 63% increase in end-user satisfaction. Second, after due diligence with other financial institutions, the client determined that most digital banking platform conversions result in an NPS score drop for the digital channel of at least 10 points, with a recovery taking at least one year.
Together, we executed a plan to deal with those realities around a big change event, and together with their help of the Alkami platform, they fully recovered to their previous NPS score of a very lofty 85.6 in 6 months, and within a year, they were beating their old lofty scores. This performance ranked them at 6 overall versus the large survey firm's peer data. Third, our client obviously wanted to grow their digital engagement with their new and existing customers and members and to grow their digital users in that way. Prior to the Alkami platform conversions, they experienced about an 11% annualized user growth, and post-conversion, their annualized user growth results and expectations have grown significantly to around 18%.
What is exciting about this is not only the strong user growth, but the fact that that growth was relatively consistent between the new and existing customers and members. This translates to tremendous success in engaging these new customer members, but also significant results in penetrating their existing base. Given the importance of the digital channel, mobile banking penetration and engagement were incredibly important factors for our client. Prior to the Alkami platform conversion, their mobile conversion was 50% against an average of about 54%. Post-conversion, mobile penetration was 66%. This incredible success and a testament to our client's team capabilities and strategies, combined with the power of the Alkami platform. It is client success stories like this that power us here at Alkami and form the bedrock of our innovation motion, ensuring our solutions deliver the results for our clients' digital strategies today and tomorrow.
Results through this innovation motion are at the center of each of our four key growth drivers discussed in our last call. Bryan will briefly highlight these drivers again in his remarks following Stephen's in a few moments. Next, let me turn it over to Stephen Bohanon to update you on our innovation and go-to-market activities. I'll be back at the end of the prepared remarks with a few comments before we go to Q&A. With that, I'll turn it over to you, Stephen.
All right. Thanks, Mike. As I touched on last quarter's call, innovations across the platform, our primary focus areas are business banking functionality, user experience enhancements with an emphasis on mobile, extensibility, and our data solutions. During the quarter, our latest software releases that we delivered to all clients contain new functionality in line with that focus, and I'll briefly discuss each area. From a business banking perspective, we launched mobile business registration as well as business payee and account analysis features. This functionality provides our clients with a more streamlined process for onboarding new businesses and their business clients with exceptional payee management capabilities, scaling to thousands of payees. In addition, the account analysis functionality increases billing flexibility for individual businesses, a key feature needed to service larger businesses.
We continue to heavily invest in our small business and commercial solutions. As a result of these efforts, we're pleased to have signed 2 additional billion-dollar-plus commercial banks in July. From a user experience enhancement perspective, we launched new functionality around our card experience, financial wellness, and our money movement capabilities. For debit and credit cards, our clients can now take advantage of new multifunction authentication options, advanced alerts, international alerts and controls, merchant type and transaction type controls. Cards and the associated revenue are crucial to many of our clients. It's critical we provide the user experience that keeps their cards top of wallet. Our financial wellness solutions also now utilize refreshed user experience with deeper partner integration and new visualization tools to help drive in-app engagement.
Finally, we launched a new product that provides real-time account ownership verification for money movement to and from external accounts. Our Instant Account Verification product reduces the friction and abandonment rate during the account verification process and also helps to mitigate fraud through account holder name matching. This is another great example of delivering a positive user experience while at the same time helping our clients mitigate fraud. From an extensibility perspective, we launched new functionality around registered applications. Registered applications are trusted systems like PFM sites and aggregators and devices like smartphones or voice assistants that have been granted trusted access to your financial accounts. With the proliferation of interconnectedness and open banking initiatives in general, many users are unaware or surprised at just how many of these applications have trusted access to their financial data.
Our new functionality here makes it easier for end users to view and manage which applications have access to their financial accounts so they can ensure their own privacy and be on the lookout for potentially fraudulent activity. From an extensibility community perspective, I'm happy to report continued momentum with our gold partner program and our SDK developer community, which continues to increase in size and activity, with June having the highest number of monthly project submissions at 97. Finally, we continue to make investments in data, and our data set continues to grow. With a codified, anonymized data warehouse that has collected and cleansed now over 5 billion transactions across more than 150 financial institutions, we believe Alkami has one of the deepest and richest transaction and account detail data sets in the country.
Combining this data along with user interaction and behavior data, we are transforming this data into actionable insights through products like our new executive dashboard to support our financial institutions' digital growth strategies. The new executive dashboard provides the institutions with their historical performance over time across 10 key digital banking KPIs that explore adoption, engagement, and conversion. What's more, we provide benchmark comparison of the institution's individual performance against that of its peers. This deep level of insight allows us to formulate growth strategies with our financial institutions based on KPIs across the digital funnel, whether adoption, engagement, or conversion.
In conclusion, we continue to innovate with speed across the strategic priorities that we believe will differentiate our clients and Alkami by, one, delivering a superior user experience for both retail and business users that taps into deep extensibility capabilities, and two, equipping our financial institutions with insights across a comprehensive data set of user transactions and institutional digital banking benchmarks. Our innovation engine continues to be central in offering our clients a functional and technical advantage against existing and emerging competitors. Next, I'd like to discuss sales momentum and our overall go-to-market engine. As I mentioned in our Q1 earnings call, the arrival of our new CMO, Allison Cerra, earlier this year, and investments in our digital marketing engine are paying off. While some in-person meetings and conferences are starting to come back, they're not at the same level as pre-COVID-19.
This has increased our reliance on the digital channel for lead generation, and we're very happy with the results, with year-to-date lead generation from digital channels outpacing leads from non-digital by 3 x. We feel the business momentum for financial institutions evaluating their digital banking solutions, as measured by pipeline growth, has really picked up in the second quarter. Trailing 12-month new sales were up over last year, and our new sales pipeline is strong, with banks representing well over 20% of the largest pipeline in our history. As I stated a moment ago, we signed several banks during July. Specifically, we signed two new billion-dollar-plus banks to our digital banking platform and a top 30 bank with over $150 billion in assets to our ACH Alert solution. Our first half 2021 sales results, combined with the pipeline and July new wins, gives me confidence in our go-to-market traction.
I would like to provide a few more comments regarding the success of the ACH Alert acquisition. The ACH Alert Solutions team continues to show the potential we identified pre-acquisition. During the quarter, we had our fourth patent issued, and since the acquisition in October of 2020, we've achieved new sales of 48 banks and eight credit unions. In addition, sales of additional products have been positive, increasing penetration into four large clients ranging from $15 billion to almost $50 billion in assets. From an innovation perspective, new functionality is expected to be released in the near term around deeper integration with our digital banking platform. On the horizon is perhaps the most exciting innovation in the near term, a multi-payment risk processing engine expected sometime during 2022.
When delivered, this would make Alkami the first digital banking provider to offer not only electronic payment origination capabilities but end-to-end processing of payments originated in digital banking. In aggregate, we believe we will have a lot more shots on goal this year than the previous year, and we expect to continue to focus on execution and converting our pipeline across all financial institutions, including credit unions and banks. I'll now hand the call to Bryan to discuss our Q2 financial performance.
Thanks, Stephen, good afternoon, everyone. Second quarter financial results were strong across the board. Let me start with revenue. We enjoy a highly predictable subscription-based revenue model possessing several growth drivers. First, our clients' success utilizing the Alkami platform to fuel their digital strategies and grow their digital communities. We refer to this as organic user growth. Second, expanding the solutions we offer and our clients' adoption of our solutions through cross-sell activity. Third, new clients joining the Alkami digital banking platform through new logo sales, which can take approximately 12 months to materialize into revenue and typically timed with the contractual term of the incumbent digital banking provider. Finally, M&A activity. We continue to evaluate the M&A landscape as a way to drive organic revenue growth over the long term, add new features and functionality, and drive compelling risk-adjusted returns for our shareholders overall.
We measure our top-line performance in terms of total revenue growth, subscription revenue growth, the subscription contribution to total revenue, and ARR growth, along with the factors affecting ARR. Total revenue and subscription revenue both grew 38% for the second quarter compared to last year. Our subscription revenue represented 94% of our total revenue. Annual recurring revenue, or ARR, of $144.7 million, achieved strong year-over-year growth of 38%. Underlying this performance, we added 740,000 users to our platform during Q2, and 2.4 million over the last 12 months, driving digital user growth of 29%, and ending the quarter with 10.7 million registered users live on the platform. We believe we are one of the leading providers of digital banking as it relates to total digital user growth. Digital user growth has been driven by two areas over the last 12 months.
First, we've implemented 24 financial institutions supporting 1 million digital users. Second, our clients have increased their digital user adoption by 1.4 million users, representing organic user growth of 17%. Revenue per user is the final area driving our strong ARR performance. During the last 12 months, we've expanded our ARPU by 7% and ended the quarter at $13.48 per user per year. This compares to our market opportunity, a blended average of $38 per digital user based on the 26 products we offer today. ARPU expansion has been derived from two areas. First, we are adding new FIs to the platform possessing an ARPU 26% higher than our overall company average from the prior year ARPU. Second, we continue to see an ARPU advantage resulting from our client sales organization that is responsible for selling add-on products and managing the renewal cycle for our clients.
We've renewed four clients representing 6% of our total digital users through the first half of 2021 and expect to renew several more as we exit the year. Renewal activity will continue to be a strategic focus, adding to our sales results. Moving on to non-GAAP gross margin. Our target operating model objective is to achieve between 60%-65% non-GAAP gross margin over the next few years. We've also stated that we plan to achieve this expansion through 200-300 basis points of on-average margin expansion per year. Our progress towards achieving this objective is candidly a bit ahead of our stated objective. For the second quarter of 2021, non-GAAP gross margin was 57.5%, an expansion of over 680 basis points compared to the same period last year.
Expansion was driven primarily by revenue scale, greater utilization and cost efficiencies in our client implementation, client support, and client success functions, and improved cost efficiency with our third-party revenue relationships. Moving to operating expense. Our goal is to balance investment opportunities with revenue growth, yet maintain a good line of sight towards profitability or adjusted EBITDA positive. We have a large market opportunity to address and recognize gaining market share at the cost of nearer-term profitability is the correct trade-off for where we are in our life cycle. We continue to expect to reach adjusted EBITDA positive on a run-rate basis during 2023. This is highly dependent upon our investment trajectory, revenue growth, and M&A activity. For the second quarter of 2021, total non-GAAP research and development expense was $11.4 million, up 18% compared to the prior year.
From a % of revenue perspective, R&D represented 31%, which is over 520 basis points of margin expansion compared to the prior year period. Despite modestly higher personnel-related costs, primarily due to platform enhancements and innovation initiatives, we achieved significant margin expansion primarily through revenue scale. We expect to accelerate platform projects during the back half of 2021, which I will speak to momentarily. Total non-GAAP sales and marketing expense was $5.1 million, or 31% higher than the prior year period. From a percentage of revenue perspective, sales and marketing represented 14%, which is nearly 70 basis points of margin expansion. Despite higher employee-related costs from head count increases in our sales and marketing teams, we achieved leverage primarily through revenue scale and lower-than-expected costs from travel as well as industry conferences and trade shows, all resulting from the continued impact of the COVID-19 pandemic.
Sales and marketing expense will increase during the third quarter of 2021 as we incur costs associated with our annual client conference. We are excited to host a hybrid event and look forward to our clients, partners, and investors who are able to attend in person. However, the event will be equally as informative to those who choose to attend remotely. Total non-GAAP general and administrative expense was $10.6 million, up 60% compared to the prior period. G&A represented 29% of revenue, which is nearly 400 basis points of margin contraction. The primary driver of margin contraction was the increased cost necessary now that we are a public company, including higher business insurance and adding new accounting, investor relations, legal, and human resource personnel. Total non-GAAP net loss was $6.1 million, an improvement of $600,000. Adjusted EBITDA loss for the quarter was $5.4 million, ahead of our expectations.
As I previously mentioned, we are taking the opportunity to pull forward and accelerate certain investment priorities around innovation and go-to-market activities as a result of the revenue and profit over performance. We continue to be laser-focused on the most balanced path to revenue growth and long-term profitability. Moving on to cash. We had over $338 million in cash on balance sheet as of June 30th, 2021. Now turning to guidance. For the third quarter ending September 30th, 2021, we expect revenue in the range of $38 million-$39 million and an Adjusted EBITDA loss of $7.5 million-$6.5 million. For the full year ending December 31st, 2021, we expect revenue in the range of $148 million-$151 million and an Adjusted EBITDA loss of $24.5 million-$22.5 million.
With respects to Adjusted EBITDA levels in the back half of the year compared to the second quarter, as I mentioned, we expect to incur additional costs related to our investment priorities as well as our client conference, resulting in an expected sequential downtick in profitability during the third quarter with the fourth quarter returning to levels similar to Q2 2021. I will now turn the call back to Mike for a few closing comments before we start the questions and answers segment of the call.
Thank you, Bryan, and thank you too, Stephen. Nice jobs, gentlemen. I just want to take a couple seconds to recap a few key points on our first full quarter as a public company. First, I'd say Alkami's innovation engine in the second quarter remained at the center of differentiating our clients and our company with the particular emphasis, as Stephen mentioned, on our UI and UX, emphasizing mobile, business banking, extensibility, and leveraging what we believe is the industry's deepest and richest data set for driving results for financial institutions. Our go-to-market engine under Allison's guidance has pivoted with the times and is well-positioned with the largest pipeline in the company's history, represented by a healthy mix of bank and credit union prospects. We've also seen progress integrating ACH Alert capabilities with strong innovation and sales results posted in Q2 for this strategic area of our business.
Our efforts are also reflected in solid financial results and 2021 outlook. As Bryan mentioned, total revenue and subscription revenue both grew 38% for the second quarter compared to the prior year. Digital users grew 29% over the same timeframe, ending at over 10.7 million, and we're running ahead of our stated non-GAAP gross margin objectives. Finally, we increased our outlook for the third quarter and the full year. As I reflect on this first quarter as a public company, I'm proud of our start and energized by this leadership teams and all Alkamists' commitment to our vision, our mission, and our results. Simply put, we fully intend to be the best digital banking platform of choice for regional and community financial institutions in the U.S.
Doing so requires a passion and competence for digital banking that is as relentless and enduring as the change our clients face each and every day. While we're still new to the public market, we are stronger than ever, and our mission hasn't wavered in our now 12th year as a company. We remain as deeply focused on executing and fulfilling our purpose as ever to the benefits of our clients, our partners, our users, investors, and Alkamists. I'd like to open it up for Q&A, and we'll turn it over to the operator.
Thank you. We will now begin our question and answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, please pick up the handset first before pressing the numbers. Once again, with your question, please press star then one to enter the queue. We have our first question from Pat Walravens with JMP Securities. Please go ahead.
Oh, great. Thank you, and congratulations on the second quarter as a public company. I would love it if you could, just because it's on everyone's mind now with Delta. Can you just remind us of the impact of sort of the first wave of the pandemic on your business and then what it did to deal activity and how you're seeing that play out today?
Yeah, Pat, good to have you on the call. Thanks for being here with us. Good question, by the way. We entered this in a pandemic. I would tell you, we jumped to it pretty quickly in March. We'd been in the midst of all the activities, financing-related for the company. Over the course of one weekend, we made the call to be 100% virtual and change how we went about our go-to-market activities, our execution support, and implementation activities, just like everybody else in the world did to get squared away on that. We felt as we went into that stage, there was a kind of a slowdown of new business opportunities commencing, like in the forms of RFPs and new activities starting there. Our launches and our implementation activities just continued with a few adjusting slightly for things going on in their operations.
We stayed pretty much on track. We held to our financial plan on sales and revenues and all elements of our financial plan for 2020 and pretty much nailed every one of those throughout that year. We did see a small uptick in the user counts, not a massive adjustment in user adoption by our client base. Our clients, I think, after hunkering down and getting ready for some of the credit and other considerations and concerns around their employees that they were dealing with, I think settled into a pretty good, steady state.
We've been marching on that path and have started to see. I'd say that coming out of this quarter, we're starting to feel some of the energy. I maybe felt some at the end of the first quarter. Energy coming back into new initiatives and new projects and getting going a little bit for the new initiatives. Our client sales has been pretty strong during this period as our clients who are already on the platform were looking for new ideas and new things that they could implement. That's how I'd summarize it. I don't know if Stephen or Bryan want to add to Pat's good question.
I think he was asking about this Delta variant, some of this new stuff coming back up as well.
Oh, the latest stuff. Okay.
Yeah, I think that what we definitely see is, as Mike says, activity has absolutely picked back up. The biggest dip was Q2 and Q3 of last year as far as net new deal opportunity creation, RFP creation. I think the only thing that's not fully back yet are all the conferences and trade shows. We're seeing some of them still have delayed out till next year. Other ones are doing versions of them this year, or maybe certain versions with mandatory vaccinations and things like that. That part isn't quite back to normal. In terms of overall deal flow, RFP generation, and so forth, what we're seeing is that that's back to pre-pandemic levels.
Great. Thank you for that, and I'm glad you're making the effort to make your conference hybrid.
Yeah, I think we started there, Pat Walravens. We're trying to decide how far down the hybrid path we're going to go, actually.
Yeah.
That dial is still moving around at this point. I would also say that a number of our team have been out and about and monitoring with our clients and with their conditions in their respective facilities. Things are tightening down again in our client community for what they're going to be doing. I think they're comfortable with supporting it, but it is sure having a day-by-day impact on the actions and interactions of our clients and our operation.
All right. Thank you very much for that perspective.
Mm-hmm. Sure.
Thank you. We have our next question from Sterling Auty with JPMorgan.
Yeah, thanks. Hi, guys. In terms of the incremental investment you're talking about of the upside on the go-to-market piece specifically, I'm curious how much of that is going to go into quota-carrying headcount versus some marketing and top-of-funnel lead generation programs? Just help us understand where you're putting that incremental amount to work and maybe quantify how much that is.
Bryan, you want to touch that one a little?
Sterling. Thanks for the question. Good talking to you again. As far as where we're allocating funds for the go-to-market, it's predominantly around marketing activities, sales training activities, and lead generation. I would characterize it more as top of the funnel for go-to-market. We're also investing further in our client sales team, likely to add two quota-carrying reps there. We've recently, and we maybe announced this last quarter because post quarter end, we added a Vice President level leader within that organization, a woman with lots of experience in the digital banking community. Really it's just continuing on a lot of the success that we have and furthering lead generation from sources now that we're more absent or at least lower activity from in-person events like trade shows and conferences.
Great. If I could sneak one follow-up in, I'm curious, you teased us with the ACH enhancement for 2022. How should we think about the monetization around that and what kind of revenue opportunity that might lead to?
Well, I'll take the revenue opportunity. It is in-flight, it's more of a roadmap item. In terms of revenue impact in 2022, it would be very little. In terms of sales activity, we'll sell in advance of actually delivering the product and then have implementations occurring later. There could be some in the back half, some increased sales activity related to it. We were mentioning it on this call just to provide an update on ACH Alert so the investment community and others would understand that we're advancing the product and the platform. It wasn't as though we were acquiring something and we wanted it to hold static because it's a very strong team with great knowledge around what they do in fraud mitigation, and we feel it's important to provide insight into how we intend to take the asset further.
Understood. Thank you.
Thank you. Our next question comes from Andrew Schmidt with Citi.
Hey, guys. Thanks for taking my question here, and congrats on a good quarter. I wanted to ask a question about the bank side. I know you mentioned 2 commercial bank wins in July. Was hoping you could talk a little bit more about the nature of those wins and how conversations with banks are evolving, generally speaking, particularly as you get more reference clients, you're more focused on the go-to-market. Just curious how the progress in the bank end market is evolving. Thanks.
Hi, this is Stephen. I'll take this one. I would say that the momentum is building there, and you hit on it. The more references you have, the easier it gets to get the next one. I would say that the sales are getting a little easier because obviously we're winning some, we're getting more live, we're enhancing a lot of the business banking functionality and features that really have probably been the number 1 reason that had kept us out of certain accounts. Right now, I think I mentioned it earlier, but we've got out of the largest pipeline we've ever had, 20% of that are actually bank deals.
I would say that the gap list in terms of what you have to do in order to be able to convert those clients over to your system and replace their current system, that list is getting smaller and smaller and smaller. You have people more and more willing to trust you that you'll get those things done in time for their launch. I'd say that in all those areas, it's not to the levels where we are on the consumer side and obviously in the credit union space yet, and we don't expect it to get there in the next year or so. I would say that the positive signs are there, and the momentum is there, not only in the pipeline, but also in actual contracted deals.
Got it. Super helpful. Thank you for that. Then just a quick follow-up. Performance in the quarter, the outperformance, what is that primarily related to? Is it organic? I know you guys have good visibility going into the quarter, but organic user growth, timing of go lives, just curious to get any sense for the nature of the revenue outperformance this quarter. Thanks.
Yeah. Andrew, could you repeat that question?
Sure. Was just hoping to get a little more color on the revenue outperformance in the June quarter, what the key drivers were?
Organic growth exceeding expectations or timing of go lives, anything like that.
A couple of things. From a user perspective, we grew just over 740,000 users during the quarter. What we covered in the quarter were a couple of things compared to Q1. We mentioned last quarter that implementations were more of a mid-year story for 2021, and we absolutely saw that with over 475,000 users implemented during the quarter. Maybe equally as important but less impactful was we saw an increase or recovery in the organic user growth of our existing clients. That was fairly low or mild in Q1. We saw that recover in Q2. We attributed the Q1 modest increase from coming out of the pandemic, high user growth, and seeing more users roll off the platform as a result of coming more towards the back end of the pandemic.
We saw that recover in Q2, which is nice, and we expect that to continue through Q3 and Q4. In addition to those items, nice ARPU pickup. That's another area of our revenue model where we would expect 5% sustainable revenue per user growth year-on-year, and we grew 7% during the quarter. Part of the benefit of our model is there's several different revenue levers that we can leverage and utilize, we're firing on most of those during this quarter.
Got it. Great set of momentum. Thanks a lot, guys. Appreciate it.
We have our next question from Saket Kalia with Barclays.
Okay, great. Hey, thanks for taking my questions here, guys.
Hey, Bryan, maybe I'll start with you just off the back of that last question. That 740,000 net increase in registered users was great to see. I wonder how you think about the cadence of those customer adds maybe over the next couple of quarters. You touched on the ARPU a little bit, but maybe how do you think about the ARPU that those kind of new users are coming in at for the back half of this year? Does that make sense?
No, that's a great question. What you're going to see is an uptick in user implementations in Q3, and Q4 will be modestly down from Q3. On the back half of the year, implementation should be in that 800,000-900,000 range. In terms of organic user growth, we would expect for our clients to continue to grow on a 15%-17% level in the back half of the year-on-year. Continued nice user growth for the full year. We should exit the year somewhere between 11.6 million-12 million live users on the platform, which is a bit ahead of our expectations, and we're excited about that. As it relates to RPU, new users are coming on at a much higher level than our overall company average.
In Q3, Q4, we expect the ARPU related to implementations to be in that $15 per user per year. What's driving that is our sales force is becoming more competent at selling more products on the initial order. We're seeing that average somewhere between 14, 15, 16 products, and in some cases, up to 20 products and above on the initial order when the company average is around 10. Lots of traction within our sales force when they're landing a new logo and selling more products as the company has more products to offer.
Got it. That makes a ton of sense. Maybe for my follow-up for you, Mike or Steve, a lot of focus here on the business banking capabilities. Sounds like, to your point, Steve, that gap list is decreasing. Obviously, a nice part of the pipeline from here as well. I'm wondering if you could touch a little bit about on the competitive win rates there, how those have trended, how you feel about where you stand versus maybe some more entrenched competitors in this space.
Yeah. I think it's hard for us to give great numbers on this because we'll look at a particular quarter, or we like to look at trailing 12 months, which is probably the best way to kind of normalize it. I would say that I would be happy for our win rate to stay at what it was a year ago because of how many more deals that we're being invited to. We would find that it had the great win rate, but, hey, you're only invited to the party four times. That's great that you won once, 25%, but you weren't in 95 parties. For us, I think what we're really seeing the most encouraging is we're seeing us being invited to a lot more of those.
That means that the consultants are saying this to RFPs, that we're getting natural references from our existing clients. Our name is just kind of getting out there. Our marketing engine is getting our name out there. We've seen a substantial pickup in the number of bank deals we're invited in, and I would say that our win rate is holding steady. Just take that for what it's worth.
The other thing I would add about investments on our business banking is increasingly, our credit union clients and the credit union opportunity, business banking is becoming more important to them. Close to half of our live users are using some aspect of our business banking platform. Our business users on the platform are up almost 60% over the prior year. It's not just benefiting the bank segment of our market, it's also impacting our success on the credit union side.
I was just going to say that.
Got it. That's very helpful. Thank you.
Thank you. We have our next question from Bob Napoli with William Blair.
Thank you. Good afternoon. Hey, Mike, Bryan.
Hey, Bob.
Hey, Bob.
Stephen, Bryan Nice quarter, nice trends. Maybe just the progression on the gross margin has been pretty dramatic, and I know, Bryan, you went through some of that, but you're certainly ahead of the expectations that we had coming into this year. What are your expectations for the trend in that gross margin, like in the back half of the year? Maybe your expectations in 2022, 2023, just longer term with the cadence. Has that changed?
Yeah. The cadence for 2022 and 2023 hasn't changed at this point, so we'll still be targeting 200 to 300 basis points of margin expansion in those years. As we mentioned as a part of the IPO roadshow and even on the Q1 call, we don't think we're capped at 65%, but we need to reach 65% before we revise that outward view of where we could go. Revenue mix certainly has a large impact on where ultimately we can go because our largest cost to sell component is the pass-through cost related to us reselling third-party solutions and IP through our platform. That's a big part of our story, is the ability to deliver innovations much more quickly than the competition, whether it's through organic development, M&A activity, or adding third-party partners.
An understanding of where that third-party mix goes in the future can certainly impact it. The next two big items are hosting and implementation cost. We're seeing an incredible amount of efficiency within those groups. Our IT team's doing really a fabulous job in driving down our cost per user for hosting. Also keep in mind, since we're 100% in AWS, which we think is an advantage for us from a go-to-market perspective, it also includes the cost of renting CapEx. We have CapEx components in our cost of sales that many of our competitors or peer comps do not have. We're still achieving nice gross margin leverage. Finally, on the implementation front, I can't say enough for our implementation team. Through the pandemic, I think they've learned some lessons along the way.
They've learned how to be more efficient, how we can provide the same level of service and client satisfaction, and do that from a remote setting, which means less travel and less cost associated with the implementation. That is a good fact that's come out of what we've learned over the last 12 months, and it's now benefiting our gross margin. For the back half of the year, I don't want to get over my ski tips and say we're going to repeat Q2, we're going to advance beyond Q2. I think for the full year, you'll see us have 300 to 400 basis points of gross margin expansion, in large part due to the one-time revenue event that landed in Q4 of 2020 for a client termination that brought a lot of gross margin in that quarter.
Absent that, we would be up significantly more than 300-400 basis points in 2021.
Thank you. You seem to have had a lot of success with ACH Alert. You have a lot of third-party partners, and that's where ACH was a third-party partner. From an M&A perspective, should we expect to see other ACH Alert-type transactions of third-party partners? What are you most focused on in that regard?
We would love to repeat the ACH Alert success and acquisition-
Over and over and over.
Over and over if we can. We view that the third-party revenue channel as a sourcing channel for M&A activity, especially for the ACH Alert or maybe slightly larger sized partners that we have. Areas of focus for us has not changed. Digital account openings is a very key area for us. The security, that's another key area, financial wellness, and then of course, any marketing data analytic type product. Quite honestly, talent would be something that we would heavily pursue as relates to M&A activity.
The only one I'd add to that is probably in the area of business service, banking services for the commercial customers that they have, if they're in payments or other services like that would be the other place. Bob, did we lose you?
I'm sorry. His line has dropped from queue. Would you like me to proceed to the next question?
That'd be great.
That'd be great. Bob will be back. We know Bob pretty well.
Thank you. Our next question is from Josh Beck with KeyBanc.
Thank you so much for taking the question, team. I wanted to go back to some of your earlier comments, Mike, just about the pace of change and acceleration that you're seeing within the industry. I'm curious maybe, it obviously always been there. There's been a drumbeat, but it really feels like things are structurally steepening on some of these adoption curves. I'm just curious maybe what's driving that, and you mentioned buy now, pay later. I'm just kind of curious with the news and everything, how the banks are approaching that space.
Well, for sure, as we've talked about before, Josh, this whole idea of the digital transformation of financial services is not sneaking up on the digitally oriented bankers and credit union leaders of today. They are hyper-aware of it, hyper-aware that virtually every product that is being presented in the market space is a product or offering that they could render themselves if they chose to, if it's pricing, availability, access, whatever element of it there is because the user experience itself is interesting, but a lot of it is the proposition that's underneath it. I think the banks think of it as, yes, it's part now more of an enabler and a differentiator possibility than it is only a threat.
You'd see Stephen and us are in boardrooms now more often than ever on banks and credit unions on what's going on in digital, why should it matter? That sense of awareness and appreciation and recognition converted to action is what we're feeling in big stage on the consumer side or on the business side. We think of the acceleration as really just more of the possibilities seem to be more reachable, more doable, more achievable. The field is leveling on the competencies it takes to do it with partners like us. That's, I think, creating a big chunk of the acceleration we're feeling.
A good idea that enters in the marketplace for us as a, let's call it a direct-to-consumer or direct-to-business offering, immediately opens the eyes of a financial institution leader in the digital world that says, "That product or service that we just saw direct to a type of customer is a product we could do ourselves if a partner like Alkami could bring it to us." Crypto is a good example with our NYDIG announcement here recently. PFM is another place, credit scoring, a lot of topics like this that you could've seen where in those ways are now getting integrated into the value prop of a financial institution in their holistic view, and they can differentiate on the aggregate.
We think it's just the awakening of something that they've seen already on their corners from other industries not to have happen, and the tools are more accessible and more doable than before. Steve, I don't know if you'd add anything to that.
No, I think that was very well stated.
Okay. Well, great. T hanks for the color. That's super helpful.
Yeah. I'm sure as all of you are consumers of digital banking products for your own lives, and so you can see this happening already probably with any of the forward-leaning financial institutions. You go, "Oh, geez, they used to have that, now I have it." That field leveling and differentiation in a new way is just going, I think. Just picking up.
Well, that's very good to hear. Maybe just one follow-up for Bryan. Just looking at the ARR growth in the first half, seems like it's high 30s. That's, I think, really encouraging leading indicator. Then just looking at the revenue growth in the back half, it's obviously taken a step down from that. Maybe just help us bridge what are some of the big moving parts there and any areas of conservatism that we should be thinking about.
Yeah, I think one of the items just to point back to, again, was in the back half of 2020, we had a large termination fee that impacted those results. On a full year basis, we're looking at revenue growth of 33%, and that's before you would adjust for that from a run rate perspective to truly understand the momentum of the business. We have good visibility based on our backlog of users that are being implemented. We will have, as I mentioned earlier, close to 800,000-900,000 users that we'll implement predominantly in Q3 rolling into Q4, and we'll exit the year a bit higher on live users than what we were expected, which will provide us good visibility into 2021. The other unknown variable is really the pace at which our client sales team closes add-on business.
For the first half of this year, our client sales team is up quite a bit over the first half of last year in terms of new sales sold. The mix of new sales or TCV that's attributed to client sales is actually picking up and increasing. To the extent that momentum continues, those are products that we sell that goes into backlog, and we implement much quicker. It's more around 60-75 days versus a 9 to 12-month implementation cycle. That's an encouraging trend, and one, if it continues in the back half, will set us up nicely for 2022.
Excellent. Thanks, team.
Thank you.
The only thing I'd add to that, Josh, is that in the back half of the year, as we've been talking about on the sales pipeline, this is like in every business, there's the story of the pandemic, and its implications on the business is almost different for every one of those. You've kind of heard our description of that as it relates to our existing customers and their awareness and their emphasis on digital, the slowdown and speed up of initiatives related to their existing platform or new ones shifting and slowing down and then picking back up.
This back half of the year, to us, subject to the Delta variant discussions we've had, is a key part of what that trajectory looks like, how this next couple quarters as we unwind whatever is next under the pandemic and whatever variant is next. That's going to be the next component of that element of next year and the year after that. It's hard to predict right now. Anybody have a crystal ball on how the Delta variant's going to play out? Don't see it yet.
Helpful context. Thanks, Mike.
Thank you. Our next question is from Mayank Tandon with Needham.
Thank you. Good evening. Most of my questions have been answered, but I did have one on the land and expand. I think, Bryan, you mentioned the 26 product portfolio that you have today. Where are you today in terms of penetration, in terms of the products across your customer base, and what is sort of the roadmap to get to that 26 magic number over time? Now, I'm sure you'll see more products over time, but just looking at that 26 number, where are we today in terms of penetration?
Yeah, today, on average, we have 10 products installed with each client. What we're seeing is, as I mentioned, our new sales team is actually generating more products than the 10 on average with new logos that we're landing, anywhere from 12 to, in some cases, up in the 20s, and it's averaging out around 15. That's encouraging for us. I think equally as encouraging, if you just look at our products and the penetration into the base, comparing where we are at 6/30/2021 to the prior year, every product except for 1 has increased in penetration. That's really the combined effort of the new sales team or new logo team with the success that we're seeing on the client sales side. I can't give you the exact cadence of when we're going to be fully penetrated 26.
I think the answer to that's never, because we're going to continue to add product and continue to innovate, and we'll always be chasing that. But I can assure you from the CFO seat and the finance side, I will not allow the sales force to tell me that we can't be 100% penetrated because we can always drive more sales. I have Stephen here, he's squirming a little bit as I'm saying that, and I'm kidding a bit, but it truly is a land and expand story, and we're seeing a lot of success from the client sales team. And I think renewals, that is another area of focus for us. We've renewed 6% of our digital user base in the first half of this year. We have more clients that will be renewing in the back half.
We all know that when a renewal is approaching, that's a great time to try to sell more product and just refresh the value prop and the benefits of our products as you have that close relationship with the client through the renewal process. We maintain a very close relationship with our clients, but it obviously gets much more closer as they're approaching a renewal because they're signing up for another 5 to 7 years with us. In some respects, we're selling the value and the innovation that the company can bring to the financial institution.
That's a very helpful perspective. Just a very quick follow-up. Given the success in corporate banking and maybe as you move upmarket, how critical is it to leverage the SI partners? Is that something that's on the table?
You want to start that one ?
When you said FI partners.
FI. FI. System integrators.
Oh, you said SI partners. Sorry.
There's been templates of other firms that have tried to use, or successfully maybe and unsuccessfully used SI partners. What we have found for us and for our position, given that our platform moves so quickly, and thousands of releases a year, major releases frequently, that it's almost impossible to keep a third party up to speed on what's the latest version, the latest implementation, and expectations. We've decided that, at least to this point, that implementation of our solution is something that is part of our core competency that we have to do exceptionally well. You heard a little bit about that in the case study.
We've left that to others and maybe future consideration, but it's not anywhere near on our list because we just feel like it's essential that our clients are counting on our unique expertise and knowledge of the last version of the product to make that implementation work. We're not going down that path there. We're using some of the partners for helping us accelerate other elements of this, but doing that part of it isn't one of them.
Financially, we're still seeing nice margin expansion, even across our implementation teams. The implementation process, from our perspective, is not a gating item. Typically, a gating item in the implementation is when is the incumbent provider contract in and managing towards that. Also, as you're moving a bit into the smaller FIs and the component of the market or segment of the market that we address, they don't have as much technology personnel on their side. That can be a bit of a gating item. We work very closely with them, to ensure a successful experience, a successful launch of the platform. We're not seeing a disadvantage in the financial model and the client experience or the speed at which we're growing our revenue by not bringing in a third-party partner.
Good point.
Right. Thank you so much. Appreciate the color.
Good question.
Thank you. We have our follow-up from Bob Napoli. Please go ahead, sir.
Oh, good. We were hoping you'd be back. We were hoping you'd be back soon.
I'd imagine you gave a great answer to my question before I got kicked off somehow. I'll get that from the transcript. I know that I don't think just that the last quarter, you'd given a metric on the TCV growth from cross-sells versus new logos. I was wondering if, A, you could tell us how many institutions you won in the second quarter and associated users, and then of your revenue TCV growth, how much of it was from cross-sell versus new logos?
For the percent of our sales in the first half of this year compared to first half of the prior year, we're approaching north of 30% that's being attributed to our client sales team. That was 20% number 12 months ago. We're seeing some nice traction there. Also, just to state at the first half of the year, we've closed nine new logos in 2021. That compares to nine new logos in 2020. Every year is going to have a story to the year, a story to the quarter, and what we have found is in 2020, we had several very large financial institutions that we had the benefit of selling to and closing, and now we're benefiting from that in our implementation cycle.
The story of the first half of 2021 has been more medium to the lower end in terms of size of the market and the sales that we've closed. Now, when we look at the pipeline and we're looking at deals that are expected to close in the back half of the year, there are some very uniquely large opportunities that we feel have a great chance of going our way. I would look at our sales for the first half of 2021, wait and see, and let's see what happens the back half of the year. Where we're not pleased with the first half of the year, it's a little bit out of our control, but it's deal velocity. If you think about the pandemic, as we exited Q1 and we were in Q2, we actually saw opportunities decline.
Stephen spoke to this a bit in his prepared remarks. As we went through Q3 and Q4, we saw activity coming back, and Q4 was a very strong quarter for us. What you see in the first half of this year is the opportunities, the dip in opportunities, we didn't have as much deal velocity in the first half of the year. Q4 of 2020 was really driven by deals that were in the pipeline expected to close pre-pandemic. I think that's a pretty important point. We saw, again, the opportunities increase in Q3, Q4. That carried over into Q1 of 2021, which has given us confidence in the back half of 2021. To Mike's earlier comment, the Delta variant, and is that going to kick us into yet another wait-and-see type of position on the end market and making decisions? We don't know.
What we're seeing in our pipeline and what we're seeing from our sales force is that's not the case at this point in time.
Thank you. This concludes our question and answer session. We thank you all for joining today. This concludes our conference. Thank you for your participation. You may now disconnect.