Welcome to the Second Quarter 2021 Alkami Technologies Financial Results Conference Call. My name is Vanessa, and 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. 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 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 4, 2021, based on the facts available to us today and 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 metrics 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, and 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 about this year and the results today. While Bryan will get more into the details momentarily, as you may have seen in the press release earlier, financial performance during the second quarter was again solid across all our metrics. Additionally, during the quarter we continued to advance important aspects of our business, including the go-to-market, product, operational, technical, compliance, security, and even people aspects. We are now about 10 months into our integration and synergy objectives with our ACH Alert acquisition, with some news to share later in the call. As we look at our market, the community and regional financial institutions in the US, we think the digital transformation of financial services is continuing to accelerate. 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 offerings including cryptocurrency for consumers and businesses alike. There are even frequent examples of these investments resulting in M&A activity in this space. Furthermore, the big tech companies and major retailers 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 even crypto. Of course, the mega banks are continuing to up the ante in their own right, with 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 many players to digitally expand or redefine or disintermediate financial services for consumers and businesses in the US. This competitive landscape for financial services requires financial institutions squarely in Alkami's addressable market to move with speed and certainty to identify and seize their strategic opportunities enabled by technology and concurrently respond to the strategic threats from competitors who often have greater resources. This dynamic landscape of our end market continues to propel market demand for Alkami's digital platform, which advances speed and allows our clients to innovate quickly and compete effectively against others with significantly larger scales. We continue to believe that the battle for relevance and success in this digitally transforming market for community and regional banks or credit unions 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 influence 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, which included the risks of interest rate environment, cyber threats, and uncertain regulatory environment. We believe that digitally focused community and regional financial institutions are aware of these risks, and armed with the right tools to complement their unique capabilities, they 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've seen them continue to perform exceptionally well in supporting their employees, consumers, businesses, and communities during these times. Stories and happenings abound of financial institutions going the extra mile. Kudos to our clients and their teams for what they've done, and their success is equally evident in their business results of 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 financial institutions, 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 1,000 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 hoping to address. Naturally, the main focuses were around improving their end-user experience. 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 that our user sentiment averages 4.8, our client had a stretch goal of achieving 4.9 rating. Prior to converting to Alkami's 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 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 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 recovery taking at least a year. Together, we executed a plan to mitigate those realities around the significant change event, and together with the aid of the Alkami platform, they fully recovered to their previous NPS score of a very lofty 85.6 in six months, and within a year, they were beating their previous lofty scores. This performance ranked them sixth overall versus the 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 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 also the fact that this growth was relatively consistent between new and existing customers and members. This translates to tremendous success engaging these new customer members as well as significant results in penetrating their existing base. Lastly, given the importance of the digital channel, mobile banking penetration engagement is incredibly important 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%, and this incredible success is a testament to our client’s capabilities and strategies combined with the power of the Alkami platform. Client success stories like this 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, while our engineering team focuses on 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 delivered to all clients contain new functionality in line with that focus, and I'll briefly discuss each area. From the 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. Additionally, 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, and as a result of these efforts, we're pleased to have signed two additional $1 billion plus commercial banks in July. From the 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 multi-factor 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, therefore it’s critical we provide a user experience that keeps their cards top of wallet. Our Financial Wellness solutions have also been refreshed 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 movements to and from external accounts. Our instant account verification product reduces friction and abandonment rates 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 simultaneously helping our clients mitigate fraud. From an extensibility perspective, we launched new functionality surrounding 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 financial accounts. With the proliferation of interconnectedness and open banking initiatives in general, many users are unaware, and surprised that so 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. I'm also happy to report continued momentum within 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 the codified, anonymized data warehouse now collecting and claiming over 5 billion transactions across more than 150 financial institutions, we believe Alkami has one of the deepest and richest transaction and account detailed data sets in the country. Combined 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. This new executive dashboard provides institutions with their historical performance over time across 10 key digital banking KPIs that explore adoption, engagement, and conversion. Furthermore, we provide benchmark comparisons of the institutions' 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 quickly across the strategic priorities that we believe will differentiate our clients and Alkami by delivering a superior user experience for both retail and business users that taps into deep extensibility capabilities, and equipping our financial institutions with insights across a comprehensive dataset of user transactions and institutional digital banking benchmarks. Our innovation engine remains central in offering our clients a functional and technical advantage against existing and emerging competitors. Next, I’d like to discuss sales momentum, 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 our investments in our digital marketing engine are paying off. While some in-person meetings and conferences are starting to come back, they aren't at the same level as pre-COVID. This has increased our reliance on digital channels for lead generation, and we're very happy with the results. Year-to-date lead generation from digital channels is outpacing leads from non-digital by three times. 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 $1 billion 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 '21 sales results combined with the pipeline in 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 2020, we've achieved new sales at 48 banks and 8 credit unions. Additionally, 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 functionalities are 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, 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 also end-to-end processing of payments originated in digital banking. In aggregate, we believe we will have many 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, and 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 client success utilizing the Alkami platform to fuel their digital strategies and grow their digital communities, which we refer to as organic user growth. Second, we are expanding the solutions we offer in our clients' adoption of these solutions through cross-sell activity. Third, new clients are joining the Alkami digital banking platform through new logo sales, which can take approximately 12 months to materialize into revenue, 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 topline 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% in 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 with regard 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 RPU by 7% and ended the quarter at $13.48 per user per year. This compares to our market opportunity with a blended average of $38 per digital user based on the 26 products we offer today. RPU expansion has been derived from two areas. First, we are adding new financial institutions to the platform with an RPU 26% higher than our overall company average from the prior year. Second, we are continuing to see an RPU advantage as a result of our client sales organization responsible for selling add-on products and managing the renewal cycle for our clients. We renewed four clients representing 6% of our total digital users in 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 objectives are to achieve between 60% to 65% non-GAAP gross margins over the next few years. We have also stated that we plan to achieve this expansion through 200 to 300 basis points of average margin expansion per year. Our progress towards achieving this objective is candidly ahead of our stated goal. For the second quarter of 2021, the non-GAAP gross margin was 57.5%, an expansion of over 680 basis points compared to the same period last year. The expansion was driven primarily by revenue scale, greater utilization and cost efficiencies in our client implementation, client support and clients have success functions, along with improved cost efficiency with our third-party revenue relationships. Moving to operating expenses; our goal is to balance investment opportunities with revenue growth while maintaining a clear path towards profitability or adjusted EBITDA positive. We have a large market opportunity to address and recognize that gaining market share at the cost of near-term profitability is a calculated trade-off for where we are in our lifecycle. We continue to expect to reach adjusted EBITDA positive on a run-rate basis during 2023. For the second quarter of 2021, total non-GAAP research and development expenses were $11.4 million, an increase of 18% compared to the prior year. From a percentage 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 expenses were $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 headcount 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 expenses 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 will be 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 expenses were $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 costs 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 this opportunity to pull forward and accelerate certain investment priorities around innovation and go-to-market activities as a result of the revenue and profit overperformance. We continue to be laser-focused on the most balanced path to revenue growth and long-term profitability. Moving onto cash, we had over $338 million in cash on the balance sheet as of June 30, 2021. Now, turning to guidance; for the third quarter ending September 30, 2021, we expect revenue in the range of $38 million to $39 million and an adjusted EBITDA loss of $7.5 million to $6.5 million. For the full year ending December 31, 2021, we expect revenue in the range of $148 million to $151 million and an adjusted EBITDA loss of $24.5 million to $22.5 million. Regarding 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 '21. 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 everyone for being here today. I just want to take a moment to recap a few key points from our first full quarter as a public company. First, I would say Alkami's innovation engine in the second quarter remained at the center of differentiating our clients and our company, with a particular emphasis, as Stephen mentioned, on our UI and UX emphasizing mobile, business banking, extensibility, and leveraging what we believe is one of the deepest and richest datasets 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 in integrating ACH Alert capabilities alongside strong innovation and sales results posted in Q2 for the strategic area of our business. Finally, our efforts are also reflected in solid financial results and a positive 2021 outlook. As Bryan mentioned, total revenue and subscription revenue both grew 38% in the second quarter compared to the prior year. Digital users grew 29% over the same timeframe, reaching 10.7 million, and we're running ahead of our stated non-GAAP gross margin objectives. We finally 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 team's and all Alkamists' commitment to our vision, mission, and results. We fully intend to be the best digital banking platform of choice for regional community financial institutions in the US. Doing so requires a passion and competence for digital banking that is as relentlessly 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 12 years as a company. We remain as deeply focused on executing and fulfilling our purpose as ever to benefit our clients, partners, users, investors, and Alkamists. Now, I'd like to open up for Q&A and turn it over to the operator.

And we have our first question from Pat Walravens with JMP Securities. Please go ahead.

Thank you and congratulations on the second quarter as a public company. Can you remind us of the impact that the start of the first wave of the pandemic had on your business, particularly regarding deal activity, and how you see that evolving today?

Hi Pat, good to have you on the call. Thanks for being here with us. Good question, by the way. As we entered this pandemic, I would tell you that we jumped to it pretty quickly in March. We were in the midst of all the financing related activities for the company, and over the course of one weekend, we made the call to go 100% virtual and change how we approached our go-to-market activities, execution, support, and implementation activities. We felt that as we went into that stage, there was a kind of slowdown in new business opportunities, particularly in the forms of RFPs and new activity starting. However, our launches and implementation activities continued with a few slight adjustments due to ongoing operational changes. We stayed pretty much on track and maintained our financial plan on sales, revenues, and all financial elements for 2020, effectively nailing every one of those throughout last year. We did see a small uptick in user accounts, not a massive adjustment in user adoption by our client base. After hunkering down and getting ready for some of the credit and employee-related concerns, our clients settled into a steady state. In this regard, as we approached the end of this quarter, we’re starting to feel some energy return. We felt that energy coming back into new initiatives and new projects starting in May, and our client sales have been pretty strong in this period as our clients on the platform seek new ideas and implementations. That’s kind of how I would summarize it. I don’t know if Stephen or Bryan want to add to that question.

Good question. Yes, I think you are asking about the Delta variant and its implications as well. What we’re seeing now is, activity has absolutely picked back up. The biggest dip occurred in Q2 and Q3 of last year regarding new deal opportunity creation and RFP deterioration. The only thing that hasn't fully returned to normal yet are the conferences and trade shows. We're seeing some still have delays into next year, while others have opted for hybrid models. That part isn’t quite back to normal, but overall deal flow and RFP generation is returning to pre-pandemic levels.

Great, thank you for that. And I'm glad you're making the effort to make your conference hybrid.

We started this journey trying to gauge our participation, and we're deciding how far down the hybrid path we're going as we continue to adjust. Several of our team members have been out in the field monitoring conditions with our clients, and we are seeing things tightening down a bit at their respective facilities. I think they're comfortable with supporting it, but it’s having a day-by-day impact on our interactions with our clients.

All right. Thank you very much for that perspective.

Thank you. We have our next question from Sterling Auty with JP Morgan.

Yes, thanks. Hi guys. So in terms of the incremental investment you're talking about in 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?

Yes, Sterling. Thanks for the question. Good to talk to you again. As far as where we're allocating funds for the go-to-market, it's primarily around marketing activities, sales training activities, and lead generation, so 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 a couple of quota-carrying representatives in addition to a VP-level leader within that organization who has considerable experience in the digital banking community. This approach allows us to capitalize on our existing successes and enhance lead generation from these various sources, especially now that we're experiencing less activity from in-person events like trade shows.

Great. And if I could sneak one follow-up. I'm curious about the ACH enhancement for 2022, how should we think about the monetization around that and what kind of revenue opportunity might that lead to?

I'll take the revenue opportunity. It's in flight, so it's more of a roadmap item. In terms of revenue impact in 2022, it would be very little. However, we will sell in advance of actually delivering the product, leading to potential an increase in sales activity in the second half of the year. We are discussing ACH Alert to keep the investment community aware of our intentions to advance product integration.

Understood. Thank you.

Thank you. Our next question comes from Andrew Smith 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 two commercial bank wins in July. Could you talk a little more about the nature of those wins and how conversations with banks are evolving generally, especially as you gain more reference clients and focus on the go-to-market? I'm just curious how things are progressing in that space?

Yes. Hi. This is Stephen. I would say the momentum is building, and you hit the nail on the head; the more references you have, the easier it gets to get the next one. Sales are becoming more straightforward; we win some and are getting live, enhancing our business banking functionality and features. That has been the top reason for previously being kept out of certain accounts. I mentioned earlier that we currently have the largest pipeline we've ever had, with 20% of that being bank deals. The requirements to convert those clients are decreasing, and we are seeing more institutions willing to trust us to deliver the necessary efforts in time for their launches. Overall, it’s not yet to the same level we see on the consumer side, but we’re observing positive signs and momentum in contracted deals.

Got it, super helpful. Thank you for that. And then just a quick follow-up. Performance in the quarter — the outperformance; was that primarily related to organic user growth? You guys had visibility going into the quarter, but any details on the nature of that revenue outperformance this quarter?

Andrew, could you repeat that question?

Sure. I was hoping to get a little more insight on the revenue outperformance in the June quarter; were there key drivers, whether it was growth exceeding expectations or timing of user go-lives?

Yes. So a couple of things: From a user perspective, we grew just over 740,000 users during the quarter. Factors that contributed to this included a couple of implementations that were performed in the quarter, where we mentioned in the last quarter that these were more of a mid-year story for 2021. We saw over 475,000 users implemented during the quarter, but we also saw an increase in organic user growth from our existing clients that was low in Q1 but recovered nicely in Q2. Several factors interacted; our revenue per user experienced a 7% increase during the quarter, indicating that we’re firing on several of our revenue levers.

Got it, that makes a lot of sense. Thanks a lot guys, I appreciate it.

And we have our next question from Saket Kalia with Barclays.

Okay, great. Hey, thanks for taking my questions here guys. Hi, 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 over the next couple of quarters and you touched on the ARPU a little bit — how do you think about the ARPU for those new users coming in for the back half of this year? Does that make sense?

No, that's a great question. We expect an uptick in user implementations in Q3 and Q4, which we anticipate will be between 800,000 to 900,000. Additionally, we expect clients will continue growing organically at a 15% to 17% level in the second half of the year. We should exit this year with between 11.6 million to 12 million live users on the platform. As for the RPU, new users are coming on much higher than our company average, and in Q3 and Q4, we expect the ARPU related to implementations to be in the $15 per user per year range, driven by the sales force's effectiveness in packaging more products as we land new logos.

Got it, that makes a ton of sense. For my follow-up for you, Mike or Steve, a lot of focus here on the business banking capabilities; it sounds like the gap list is decreasing. I'm wondering if you could touch on competitive win rates there and how those have trended, how you feel about your stance versus perhaps some entrenched competitors in the space?

Yes. It's difficult for us to provide exact metrics since we prefer to view performance on a trailing 12-month basis. Our win rate is satisfactory considering how many more deals we are being invited to. We’re not only seeing consistency in our win rates but a significant increase in opportunities for invitations based on our performance with existing clients. We're being referenced to more RFPs, and our increased marketing has raised our profile. We're pleased with our growing reputation, which continues to give us more chances to play the field.

Additionally, our credit union clients are increasingly valuing our business banking capabilities. Roughly half of our live users are now involved with our business banking platform. That segment has seen nearly 60% growth year-over-year among business customers.

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, Mike, Bryan, Stephen, and Rhett. Nice quarter, good trends — the progression of gross margin has been remarkable and I know Bryan, you went through some of that, but you're certainly ahead of the expectations we had coming into this year. What are your expectations for the trends in gross margin in the back half of the year? And your expectations for 2022 and 2023? Just looking longer term, has the cadence changed?

Yes. The cadence for 2022 and 2023 hasn’t changed at this point; we'll still be targeting 200 to 300 basis points of margin expansion in those years. We don’t believe we're capped at 65%, but we need to achieve that before revising our expectations. The revenue mix will have a major impact on where we can go since our largest cost component is tied to the third-party solutions. Understanding this mix will be increasingly crucial. Improvement is reliant on downward trends in implementation costs, our IT team is making strides in reducing costs for hosting, and much of our expenses are while using AWS, which is advantageous for us. The implementation process isn't a major hurdle, but rather it's tied to our ability to address the contracts with incumbent providers. We've seen efficiency improve during the pandemic leading to beneficiary impacts on our gross margin. For the back half of the year, while it would be ideal to replicate Q2's performance, we anticipate it may fluctuate. Overall, we expect 300 to 400 basis points of gross margin expansion in 2021, absent any one-time revenue events.

Thank you. It sounds like you're looking for additional opportunities for M&A, are you pursuing that strategy? How do you see that fitting into your model?

Yes, we would love to repeat the success of the ACH Alert acquisition. We view that third-party revenue channel as a sourcing channel for activity, especially for the ACH Alert acquisition. Areas of focus include digital account openings, security, financial wellness, and marketing data analytics. Talent acquisition is also a potential area of focus for us regarding M&A activity.

As we continue to explore M&A activity, we think there will be opportunities around business service banking offerings for commercial customers as well, which can be an additional area of focus.

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 earlier comments, Mike, just about the pace of change and acceleration you're witnessing within the industry. I'm curious what is really driving that — it has always been there but it feels structurally steeper on some of these adoption curves. Can you explain what's driving that sentiment? Additionally, how are banks addressing the new openings within this space?

Certainly. The digital transformation of financial services isn’t new to the digitally oriented bankers and credit union leaders; they are very aware of it. It's a critical focus point, particularly regarding how they offer a different set of products while leveraging their existing infrastructure. As a result, the banks see digital now as not merely a threat but also an enabler and differentiator. Boardroom discussions are focusing heavily on digital strategies, with leadership seeking to understand its significance. This increased awareness has resulted in actions that are projected onto our business at both the consumer and business levels. The possibilities for digital banking feel more reachable now than before. Tools are more accessible, and through our partnerships, institutions are now seeing ways to realize these tools effectively.

That's very good to hear. Just a follow-up, for Bryan, on the ARR growth — it seems high '30s when I look back, that can be really encouraging. Looking at revenue growth in the back half, it'll take a step down from that. Could you help bridge the key moving parts and any areas of conservatism that we should consider?

Absolutely. To reiterate, for revenue growth in the third quarter, we anticipate seeing more normal figures than what we saw in Q2. In 2020's back half, we had a larger termination fee impacting results. On a full-year basis, we expect revenue growth of 33%, but this is to be viewed in comparison with last year's growth rates. At the same time, we have good visibility based on our backlog, with implementations for Q3 and Q4 allowing total user growth concerns for the back half to remain strong. Additionally, our clients’ renewed sales in this year also give us opportunities to sell new products, allowing us to create promising growth throughout the rest of 2021. In essence, we've got multiple paths revenue-wise and are optimistic about our progress.

Excellent. Thanks for the context.

Thank you. We have our next question from Mayank Tandon with Needham.

Thank you. Good evening. Most of my questions have been answered, but I did have one about land and expand. I believe Bryan you mentioned the 26-product portfolio. Where do you stand today in terms of penetration of these products across your customer base and what's the plan to get to that 26 number over time? Looking at overall penetration, where do we currently stand on those fronts?

Yes, so today, on average, we have 10 products installed with each client. Our new sales team is generating more product sales than the average existing score, landing deals averaging about 15 products, whereas the company average is around 10. I can't definitively say when we reach full penetration on those 26 products; the continuous roll-out and addition of new products means there will constantly be a moving target. However, I will say our team is relentless in pursuing higher product familiarity with our existing clients. We're renewing clients that represent only 6% of our total digital users in the first half of this year, and more will renew in the second half. Every renewal opens the door to pitch for additional products while showcasing the value of our solutions.

That’s very helpful perspective. A quick follow-up; given the success in corporate banking and as you move up market, how crucial is it to leverage the FI partners? Is that a strategy you're looking into?

Currently, we prefer not to bring in third-party partners for implementation; we believe we maintain better control over our established core competencies. Continuous enhancement is essential to our clients, and we’ve leveraged our unique knowledge to deliver successful results every time. While we are evaluating our partner strategy in the future, we’re not pursuing third-party partnerships at this time due to challenges in keeping them aligned with our frequently changing product offerings.

We’ve run out of time and have to wrap things up. Thank you all for your participation today.