Q4 2023 Alkami Technology Inc Earnings Call
Participants
Steve Calk; Head of Investor Relation; Alkami Technology Inc
Alex Shootman; Chief Executive Officer, Director; Alkami Technology Inc
W. Bryan Hill; Chief Financial Officer, Treasurer; Alkami Technology Inc
Mayank Tandon; Analyst; Needham & Company
Andrew Schmidt; Analyst; Citigroup Inc.
Jacob Stephan; Analyst; Lake Street Capital Markets, LLC
Pat Walravens; Analyst; Citizens JMP Securities, LLC
Elyse Canner; Analyst; JPMorgan Chase & Co
Charles Nabhan; Analyst; Stephens Inc.
Cris Kennedy; Analyst; William Blair & Company LLC
Adam Hutchkiss; Analyst; Goldman Sachs Group, Inc.
Saket Kalia; Analyst; Barclays Bank PLC
Presentation
Operator
Good afternoon ladies and gentleman and welcome to the Alkami Technology first quarter 2023 financial results conference call. At this time all lines are in a listen only mode. (Operator Instructions) this call is being recorded on Wednesday, February 28, 2024. I'd like to turn the conference over to Steve Calk, Vice president and Investor Relations. Steve go ahead.
Steve Calk
Thank you, operator. With me today on today's call are Alex Shootman, Chief Executive Officer, and Bryan Hill, Chief Financial Officer.
During today's call, we may make forward-looking statements about guidance and other matters regarding our future performance. These statements are based on management's current views and expectations and are subject to various risks and uncertainties, our actual results may be materially different.
For a summary of risk factors associated with our forward-looking statements, please refer to today's press release and the sections in our latest Form 10-K entitled risk factors and forward-looking statements. Statements being made during the call today are being made as of today, and we undertake no obligation to update or revise these statements.
Also, unless otherwise stated, financial measures discussed on this call will be on a non-GAAP basis. We believe these measures are useful to investors in the understanding of our financial results. A reconciliation of the comparable GAAP financial measures can be found in our earnings press release and in our filings with the SEC.
I'd like to now turn the call over to Alex.
Alex Shootman
Thank you, Steve. Good afternoon and thank you all for joining us. And I'm pleased to report that Alkami delivered strong financial performance in the fourth quarter of 2023. This contributed to a great year and demonstrated on several fronts progress towards the multiyear revenue and profit guidance we discussed at the beginning of the year.
The fourth quarter Alkami grew revenue 29% once again ahead of street expectations. The quarter was 17.5 million, while registered users on the Alkami platform up 3 million compared to the prior year, and we generated approximately $3.1 million in adjusted EBITDA.
For the full year of 2023 we delivered excellent results with 30% revenue growth and positive adjusted EBITDA a quarter earlier than projected, making progress on key initiatives that will deliver on our future revenue and profit targets.
Some highlights for the year include the following we won 39 new logos with a total contract value of 21% last year, representing essentially over a year in our history, we can prevent financial institutions from total contract value sold demonstrated the growth opportunity in our client base by delivering total contract value from add on sales at the highest level in our history.
Our culture of treating decline as our North Star produce results as Alkami did not lose a single client off the platform during 2023. In Q4 alone, we renewed 20 clients who averaged five new products added and extended with Alkami for another five years and February of 2024.
We renewed our largest client, which is a top 10 credit union, more than doubling the original total contract value and extending the relationship for another five execution of the main market continued as we nearly doubled our bank clients under contract and implemented clients or to new book, thank cores that are key to our long-term strategy. We also signed our second largest total contract value, new logo transaction in our history, which is about client clients onto fiber platform process.
Investments for long-term scalability began to have a little higher because of our clients and our economics. And we added executive team in two important areas of our business engineering and client experience, which includes coal post sales activity. One of the most reassuring outcomes of 2023 is the resilience demonstrated by our end markets, which contributes to the confidence we have in our longer-term financial guidance.
Our market consists of over 9,000 regional and community financial institutions that are rarely public entities. They are focused on their communities and operate with very diverse strategies. This results in a lower risk profile, which was evident in the months after the spring liquidity event that impacted a handful of super regional banks.
Throughout 2023, we saw stability within our clients' deposit balances, number of customer accounts and strengthen the buying behavior of our target market. We are optimistic as that momentum carries over into 2024 and our optimism is supported by some weak recent market research.
Just completed an independent survey of our market in which 90% of banks and 89% of credit unions said they were optimistic about their financial future over the next 18 months and 67% of banks and 72% of credit unions anticipate increases in their technology budgets in 2024.
Often, these target market considers a modern digital banking platform to be a non-discretionary investment. Our clients and prospects tell us that to remain competitive with megabanks, they must have a great digital sales and service channel that one industry analyst recently wrote. We believe the demand for digital transformation remains more robust than ever, particularly as many of these FIs need to invest in technology to attract deposits in what is now a more dynamic deposit-gathering environment with higher interest rates.
Companies that convert to stay with Alkami , tell us that the investment we've made in a cloud native single code base multi-tenant system with a superior user experience for extensibility as a philosophy and data as a long-term advantage helps them compete against megabanks, which is why more buyers said, yes, to Alkami in 2023 than any other provider in the market.
We continue to focus on the four priorities that we shared with you since becoming a public company within the bank segment of the market, drive growth through add-on sales engineer, our technology platform for scale become the employer of choice in our market and use M&A opportunistically.
These objectives will continue to drive our multiyear revenue and profit goals in 2024. We believe if we do four things well, related to our long-term priorities, we will create distance between us and the rest of the market that will be difficult for others to overcome.
Number one continue to invest in client satisfaction in the client journey, our clients want to move with speed and bringing new capabilities to market. We are investing in our platform to make it easier to integrate other technologies into Alkami and allocating engineering resources to reduce the time it takes to implement new capabilities for existing clients.
Number two, accelerate the momentum we're building in banks. During 2023, we had external experts benchmark our commercial offering against market requirements, and they found that Alkami now leased 92% of client expectations in commercial banking functionality.
We have allocated product and engineering resources to fully close or close the remaining product gaps in 2024 and as we implement the 17 banks in our backlog, we will continue to strengthen the capabilities of our commercial offering. Our sales pipeline remains strong, and we expect continued success in this market segment.
Number three, maintain excellence, our excellence and launching new clients each year as we grow, we continue to ramp the number of new clients we launch. It's one thing to launch a few clients a year, but ultimately plans to launch 40 new clients in 2024. The ability to successfully launch clients is a sustainable competitive advantage for Alkami. And during 2024, we intend to build upon our strength in this area while we improved productivity.
Finally, we're going to build leadership at all levels of Alkami as we go past 1,000 employees and are on our way to serve 25 million or more digital users on our platform. We need leadership infrastructure, just like we have technology infrastructure. We have a leadership development program within Alkami that's helping our top 50 leaders become great software executives, understanding how to create value for our clients and our shareholders and maintain the culture that's been critical to our success.
In closing 2023 was a great year for Alkami, we continue to add more digital users and lose less clients than any other digital banking provider in the market. This is a result of the people we have; the culture we thrive in the market we serve and the technology we build for too long. Our market has suffered with outdated technology and Alkami intends to bring great technology to this market and be the number one digital banking provider.
As we look towards 2024, I'm proud to be part of one of the fastest-growing bank technology companies, and I'm excited to drive even more value for shareholders, clients and employees.
I'll now hand the call to Bryan
W. Bryan Hill
Thanks, Alex, and good afternoon everyone. 2023 has been another successful year for Alkami. We achieved $265 million in revenue, representing 30% growth and improved our adjusted EBITDA loss from $18 million in 2022 to $1.6 million in 2023.
Our Q4 results contributed significantly to our full year performance and allowed us to exit the year with positive momentum for the fourth quarter of 2023, we achieved revenue of $71.4 million, representing growth of 29%. Subscription revenue grew 30% compared to the prior year quarter and represented approximately 97% of total revenue.
We increased ARR by 29% and exited the year at $291 million. We currently have approximately $52 million of AR are in backlog for implementation, the majority of which will occur over the next 12 months. We implemented 7 new clients in the quarter and 37 for the full year, bringing our digital platform client count to 236.
We now have 44 new clients in our implementation backlog, representing 1.3 million digital users. We exited the quarter with 17.5 million registered users live on our digital banking platform, up 3 million or 20% compared to last year, over the last 12 months, registered user growth continues to be driven by two areas.
First, the 37 financial institutions we implemented in 2023 represent 1.5 million registered users and just over $27 million of ARR, both of which exceeded the full year 2022 by approximately 35%. Secca, our existing clients increased their registered users by 1.5 million, demonstrating the market's focus to drive customer retention and growth through the digital banking platform.
In terms of churn for 2023, we did not experience any digital banking client churn, and we expect to lose only three clients in 2024, representing less than 1% of our ARR. This compares to our expected long-term average churn at 2% to 3%.
We ended the year with an RPU of $16.63, which is 7% higher than last year, driven by add-on sale success and the addition of new clients who tend to onboard with a higher average RPU. We continue to see healthy demand across our product portfolio. During 2023, we signed 39 digital banking platform clients, of which 16 were signed during the fourth quarter.
Our new client wins reflect solid representation from banks with 12 signed during 2023. In addition, 14 of our signed new clients adopted ACH alert while 22 adopted segment demonstrating the importance acquisitions can play and building on our platform and creating a competitive advantage.
Our add-on sales focus continues to yield results, representing 35% of total new sales for 2023. In addition to add-on sales, our client sales team is responsible for client contract renewals. During the year, we renewed 31 client relationships where we raised the ARR run rate 6% through a combination of new product sales a committed client growth. And finally, our remaining purchase obligation, our contract backlog reached 1.1 billion, almost four times our ARR and 28% higher than a year ago.
Now turning to gross margin and profitability.
For the fourth quarter of 2023, non-GAAP gross margin was 60.3%, representing 390 basis points of expansion when compared to the prior year quarter. Gross margin expansion resulted from improvement in our hosting cost per registered user, combined with operating leverage across our post-sale operations, such as our implementation, support and site reliability engineering teams.
We continue to scale post-sale operations while delivering the previously mentioned higher level of output. As reminder, our 2026 target operating model is a non-GAAP gross margin of 65% as we continue to scale our revenue.
Moving to operating expenses, for the fourth quarter of 2023, non-GAAP R&D expense was $17.3 million or 24% of revenue, 530 basis points lower than the year ago quarter. We are achieving operational scale while investing in our platform to drive future efficiency, best-in-class reliability and innovate new products and functionality.
Our target operating model is to leverage R&D to 20% of revenue by 2026. While we continue to invest and expand our platform. Non-GAAP sales and marketing expense is $10 million or 14% of revenue, in line with the prior year. We continue to achieve a high level of sales team productivity and go to market efficiency.
For example, during 2023, we increased our ARR just under $65 million, while investing $41 million in sales and marketing representing an efficiency ratio of [1.6 to 1] for ARR creation to sales and marketing investments, we expect to maintain or slightly improve our go-to-market efficiency as we scale the business and gain market share. As you consider 2024 keep in mind, we will host our annual client conference in the second quarter, which results in approximately $2 million to $2.5 million of higher spend than other quarters of the year.
Non-GAAP general and administration, administrative expenses were $13.5 million or 19% of revenue in the prior year quarter, G&A was approximately 21% of revenue. The margin expansion is primarily attributable to revenue scale. As we closely manage G&A expenses, we expect to achieve 10% to 12% as a percentage of revenue as we move toward our 2026 profitability objectives.
Our adjusted EBITDA for the fourth quarter was $3.1 million, which is an improvement of over $7 million when compared to the prior year quarter. We are very pleased with our 2023 adjusted EBITDA progression. As a reminder, we've established a 2026 adjusted EBITDA margin objective of 20%.
We expect our path to 20% will occur at a pace of roughly 700 basis points of adjusted EBITDA margin expansion per year. Now moving to the balance sheet. We ended the quarter with just over $92 million of cash and marketable securities. During Q4, we retired our term debt at just over $82 million. Our credit facility revolver remains undrawn and provides $60 million of borrowing capacity.
Now turning to guidance. For the first quarter of 2024, we are providing guidance for revenue in the range of $74.5 million to $76 million and adjusted EBITDA of $2.5 million to $3.5 million. For the full year of 2024, we are providing guidance for revenue in the range of $327 million to $333 million, representing growth of 24% to 26% and adjusted EBITDA guidance of $20 million to $23 million.
Additionally, because of the impact of expense timing such as our client conference, as I mentioned, earlier, we expect the second quarter to be the low point of our adjusted EBITDA in 2024, modestly lower than the first quarter of the year and consistent with the long-term seasonality of our second quarter expenses.
In summary, 2023 was a great year for Alkami, a year of strong performance, where we achieved a record level of new sales from both new client wins and add-on sales added a record number of digital users to our digital banking platform and meaningfully improved our profitability profile by exiting the year with gross margin over 60% and continuing a trend of positive adjusted EBITDA.
We remain confident that we are well positioned to achieve our 2026 financial objective of 20% adjusted EBITDA margin. Our confidence is derived from exceptional visibility and a track record of execution of scale across all areas of the business. We exited the fourth quarter with strong momentum and look forward to delivering another great year in 2024.
With that, I'll hand the call to the operator for questions.
Question and Answer Session
Operator
Thank you. (Operator Instructions) Mayank Tandon, Needham.
Mayank Tandon
Thank you. A good evening, Brian and Alex. I wanted to start with a question on the bank market. As you compete for banks in the SMB space, I just want to get a sense of what the competitive landscape looks like what are your win rates in that market. And who are you taking share from others, the legacy incumbents or some of the other digital centric there that might have secured that market some years ago, but now are maybe coming up on renewals and maybe losing market share to a cloud-based solution like yours?
Alex Shootman
Thanks for the question. This is Alex. The pattern match is very similar to the early days of the credit union market where these clients have a legacy digital platform. It might be 10 or 15 years old. And so we are replacing those legacy platforms that are 10 or 15 years old with a with a more modern experience. What they're realizing is that kind of two things.
One, even though even though they're serving businesses, those businesses are made of people and those people have an expectation of a more modern experience in any of the technology that that they're using the second thing that they're realizing is that some of the legacy technology creates a pretty big overhead on their own internal operations and that more modern platform can create some efficiencies for them for them internally. But the short answer is we are replacing 10 to 15 year old technology just like we did in the early days of we have our participation in the credit union market.
Mayank Tandon
That's a very helpful, Alex. And then maybe just turning to the financials and Bryan, maybe you talked about this, but just trying to look at the revenue growth that you guided to, how does that break down between RPU expansion and obviously user growth being the main engine? Just wanted to get a sense of the balance between the two key drivers of underlying growth?
W. Bryan Hill
Yeah well that's great, Mayank. Our 2024 revenue guidance, and it's very comparable to the longer-term guide that we provided on revenue and as well as our profitability objectives. And what we continue to say is we've got a company we've developed a model we have a market that can sustain a 25% growth rate, which is the midpoint of our guidance.
And how we achieve that from year to year is a combination of two things we would expect to add between 18% to 20% from them on users to the platform and 5% to 7% coming from our RPU expansion. The users that we add to the platform will first come from the new logo backlog that we have entering the year. So we have 1.3 million digital users in backlog.
We have 44 financial institutions in backlog, and we expect to implement approximately 40 of those this year, the balance will come from our clients growing their users. So in 2023, your clients grew their users 10% in 2022 is slightly higher than 10%. So we expect that will continue at that 10% existing client user rate.
As it relates to RPU expansion from two areas that we derive expansion in 2024 and really beyond. One is add-on sales. Add-on sales is now approximately 35% of the total contract value that we sell in each year. We think over time, we can increase that to a level of 50%. But RPU expansion primarily comes from add-on sales into the existing base.
And then finally, what we're identifying is as we have more products to sell our sales team on the new client wins side, they're selling more products on the initial order. So in 2023, on average, we had 18 products per order. We had over 14 clients that had 20 plus products. So there's a greater adoption of products on the initial order. If you went back a year it was 17 products a year before that it was 15 in the year for that it was 12. So we're seeing good momentum in a number of products that are being taken on the initial order, which also has the impact of expanding RPU over time.
Mayank Tandon
That's very helpful color. Thank you so much.
Operator
Andrew Schmidt, Citi. Your line is open.
Andrew Schmidt
Hey, Alex. Hey, Bryan. Steve, a good quarter here. Good consistent results and thanks for taking my questions. On the ARR I think it was up 29% exiting the year on the live error. The I think the revenue outlook, as you mentioned before, Bryan, your 25% at the midpoint, maybe you could help us just reconcile that seems like, you know, ARR is obviously a good indicator, but any help there would be great. Thanks so much.
W. Bryan Hill
Yeah, so when we provide guidance one quarter out Andrew and it's a very predictable revenue model. So we generally have between 97% to 98% ARR coverage on the subscription revenue that we're going to deliver in the next quarter. And then also what we know.
And we know this with a pretty high degree of certainty again and providing us the visibility and predictability of the model is the number of clients that will launch in the quarter. So the class it will take a lot of out of backlog and then also we'll really what's been scheduled for the for the full year. So that's a very known item for us as well.
And so then the final areas that can provide revenue lift over time is our ability to sell more product from the add-on sales perspective into the base and the speed at which we implement that. So that's the variables that we have that can drive the revenue growth.
Andrew Schmidt
All right. Thank you, Bryan. And maybe then just a product question. I think, Alex, you mentioned commercial product keynote that big initiative this year is to sort of continue to iterate and improve that. Maybe talk a little bit about where you're at today in terms of business sizes, you serve the functionality and then you know, some of the things that you're going to be doing this year to Q. iterate that obviously, you know, big focus on deposit gathering. It seems like it could be well received in the market, but any help there would be great.
Alex Shootman
Thanks a lot, thanks. The feedback that we've had from customers that we've signed in the bank market with respect to our commercial offering is that they're attracted to our commercial offering, but with some of their more sophisticated customers, they have some I call it in the payments area. They just have a wire capability that they'd like to see us improve our and our sophistication on.
So generally, as I mentioned in the call, external study, we get really great coverage on the product when our customers look at the product and then look at their more sophisticated customers, they're saying more Alkami. There's a couple of things you could do to help me with our more sophisticated customers.
The second area is, are there customers that have more complex ownership interlock, if you will, where one person might own three or four different LLCs and they might share those LLCs with different folks, and they might have bookkeepers that operate against different again against different entities. And so that's something that we built in the back half of the year.
Once again, from customer feedback to say, I need a better way to allow these sophisticated, I would say not sophisticated, but more complicated on entities to be able to access the right of the right businesses in the digital channel. So in summary, on through ownership structures and certain areas of payments like wire processing.
Andrew Schmidt
Got it. Thank you very much, Alex and credit risk and roger were at a predefined green level.
Alex Shootman
Now we are talking about having 92% of coverage on the product, we're starting to get to a pretty fine grain level in terms of what we need to work on data at.
Andrew Schmidt
Got it. Thanks, Alex. Appreciate the comments.
Operator
Jacob Stephan, Lake Street.
Jacob Stephan
Congrats on the results and a strong finish to the year here. I just wanted to touch on the nonrenewal that you pointed out, you know, what is this a factor of these customers switching to a competitor? Or are these more just acquisitions in the FI space?
W. Bryan Hill
Yeah, so the three financial institutions that we know are not renewing and leaving us in 2024 at two of those are pretty small financial institutions that are going through a core conversion and they selected cores that are more esoteric in nature that we will never build integration to.
There's not a density of financial institutions on those cores for the investment to the right return of investment for us. And the third one is the result of the financial institution being acquired generally for Alkami we've been the beneficiary from merger and acquisitions of financial institutions. But in this case, we are not our Finance, the financial solutions, that's our client is not the acquirer and they're moving to the digital banking platform of the acquiring financial institution.
Jacob Stephan
Okay. And then it sounds like the mix of banks and implementation backlog is shifting kind of above the one-third banks. The two thirds credit union like it has been over the last couple of quarters, but maybe you could just kind of talk about what you're seeing there. Is there any difference in implementation times for a bank versus a credit unions?
W. Bryan Hill
Yeah I'll jump and take this one. Now, if you can, as usual for the implementation, time for a bank is slightly longer and then a credit union today. So our credit unions are averaging them depending on the number of integrations and the complexity and the size, but they average between eight and nine months a bank, the implementation lift is look, it's more hands on.
There's more them more client specificity of the financial institution that's involved in the implementation effort like around delegation of authority roles and rights in wires and those types of things that have to be implemented as well. So that tends to extend the implementation out a bit longer with what's cool about 2023 is we added integration into three new cores, two of those were in the fourth quarter. So now we have integration into eight bank core systems and there's two or three more that we feel like we need to build over time to have great coverage of the bank side of the market.
Alex Shootman
Given the I would just add to that on in one for clarity, when we say we added integration. It means that customer went live. So this wasn't something that we sold. This is the customer is live on a core. These two quarters are critical to our long term bank strategy.
And what we what we tend to see is that there's a bit of a logarithmic curve on effort that it takes to do an integration where after about the fifth integration a time that we do an integration and we're at a steady state of the integration of the integration effort. So we were really pleased to get these two clients live on these two brand new bank cores for us, which opened up a pretty big chunk of the market.
W. Bryan Hill
And just to give more direct on the backlog at the 17 bank financial institutions in our backlog, we expect to implement 13 of those in 2024, and we had seven bank implementations in 2023. So we're starting to see more productivity and see a greater number, have bank financial institutions come live on our platform.
Jacob Stephan
Okay. Very helpful. Thank you.
Operator
Pat Walravens, Citizens JMP.
Pat Walravens
Great, thank you. And Alex, can I ask sort of big picture? What are the biggest challenges facing your banking clients in '24 and how might that be different than '23? And the same question on the credit unions?
Alex Shootman
Yeah, I would say for both, it's obviously continuing to attract and retain deposits in the environment, which creates a pretty heavy focus on digital account opening or the call it frictionless account opening, and that could be an account opening of an existing customer or member who is buying a new product or it could be the acquisition of as a new customer.
I think the past the things that folks are starting to understand and I wouldn't sort of say, hey, it's a big challenge in '24, but it is a challenge that they're starting to address is if you think about if you think about a regional or community financial institution bank or credit union, there's five systems that you have to have to run that, that bank or that credit union, just like if you were an airline, you'd have to have a reservation system yet their core system, you have to have a digital banking system.
You have to have payments capability at that lending capability. If they have fraud management from now through Bank of America. You would add to that your data platform and your data capability, you would consider that the skills that you have in your organization to the to manage data, which is obviously the engine for any kind of artificial intelligence.
You would consider that to be as critical as the other five systems, but we're starting to see in our customer base is a recognition that they're having to start to build the skills from a data perspective to allow them to compete and compete with the megabanks.
So kind of twofold answer that one is to continue to attract deposits and continue to be able to in a frictionless manner, offer new products and onboard customers. But then more strategically, they're realizing that they've got to start building some skills and capabilities. They don't have today to be able to compete with the megabanks as a great company.
Pat Walravens
Great Alex. Thank you.
Operator
Alexei Gogolev, JPMorgan.
Elyse Canner
Hi this is [Elyse Canner] for Alexei Gogolev. As you kind of touched on this earlier, talking about the ratio of net new ARR to sales and marketing spend and how you aim to get that to I believe you said around 1.6, I know you provided some color on what that entails, but could you just kind of go into more detail on how you plan to? Thank you.
Alex Shootman
The question was and I'll repeat it. Maybe it was it around the target operating model in 2026?
Elyse Canner
Yes. About getting to the 1.6 ratio of net new ARR and sales and marketing spend figure.
W. Bryan Hill
Yes. So when we think about 2026 and sales and marketing as a percent of revenue. So ultimately driving to our 20% adjusted EBITDA, we believe that we will continue to maintain a consistent level of efficiency that we have today. So in other words, to continue to generate the new client wins and cross-sell activity, our investment dollars will be comparable in sales and marketing to our own to our revenue growth.
And so by 2026 will still be between a 14% of revenue to 15% of revenue contribution from that component of operating expenses. In order to achieve that, we'll maintain a 1.5 to 2024 as a 1.6 of an our creation to sales and marketing expense and other areas of that are equally as important is we would expect to continue to leverage our R&D down to 20% of revenue.
And we're doing that from a couple of different areas one is revenue scale, second is continued efficiency within our engineering group and our product group as well as some offshoring activity that we began in 2023. And then finally, G&A, we would expect to be at a 10% to 12% of revenue by 2026. That's primarily coming from just expense management and scaling our G&A line as our revenue grows.
Alex Shootman
So [Alexi], the 1.6 to 1 ARR creation sales and marketing investment is what we're achieving today. So that's not a future target that we are and we're somehow growing into that's what we achieved in 2023.
Elyse Canner
Okay. Got it. Thank you.
Operator
Charles Nabhan, Stephens.
Charles Nabhan
Hi, guys. Good evening and thank you for taking my question. I know on the new business gets a lot of airtime, but I was hoping you could comment on some of the trends you're seeing in your renewal business specifically in terms of on your ability to upsell upon renewal as well as any pricing trends you're seeing when the when the contracts come up?
W. Bryan Hill
Yes, the renewal class in 2023 was pretty phenomenal. So we renewed 31 clients and we renewed 20 of those in the fourth quarter in all of 2022, we renew 20 clients. So we're seeing more renewals. And as and as those are occurring, we're seeing a nice uplift of about 6% upon renewal. That's coming from a couple of different areas. It's cross-selling new product into the client account.
And then it's also the clients signing up for additional minimum commitments that increase over the new renewal period. It's those two components that are driving the uplift in renewals that we're seeing. And then also in February, as Alex mentioned, in his prepared comments, which was a very nice renewal for us, was our largest client, which is a top 10 credit union. When you compare the contract value of this client to the original contract that they signed six years ago, the value of that contract has more than doubled.
Charles Nabhan
That's great. I appreciate that color. And as a follow-up, just had a financials question and apologies in advance if you touched on this already, but could you talk about beyond gross margin assumptions embedded in your of your '24 guide?
I know historically you've talked about 2 to 300 bps of margin expansion. I imagine it will be somewhere in that range, but you also have some kind of balancing investment with efficiency. So any comments you could make on cadence and how we should think about that expansion on a quarterly basis would be helpful as well.
Alex Shootman
Yeah, well, that's great. So in 2024, we're going to experience 700 basis points of adjusted EBITDA margin expansion. The way to think about that is 250 basis points will come roughly 200 basis points will come from gross margin and 450 basis points will come from OpEx.
The gross margin leverage that we're experiencing, a good component of that is coming from investments that we're making in our platform that continue to drive down our cost per registered user in terms of the hosting costs that we pay to AWS. and the other areas where we're seeing a nice operating leverage is in the post-sale operations of our business.
So implementation, site, reliability, engineering and our support functions. All of those functions are experiencing operational efficiency that's contributing to the year-over-year gross margin expansion. When we and I know you didn't ask this, but when we drop down to OpEx, the majority of them about two thirds of the operating expense efficiency will come from G&A and the balance will be split evenly between R&D and sales and marketing.
Charles Nabhan
Right. Well, thanks again and great quarter, guys.
Operator
Cris Kennedy, William Blair. Your line is open.
Cris Kennedy
Good afternoon and thanks for taking the question. Alex, you touched on the importance of data. Can you just talk about kind of what you're doing to leverage data that's on your platform?
Alex Shootman
Yeah. Thanks on for us from the very beginning when Alkami was created. There was a notion that for storing the transactional data could be useful for a financial institution. And then we and we built some technology to do that. And then we took a pretty big step forward with an acquisition on summer before last, I'm looking at Bryan summer, which only to April '22 with an acquisition date for '22 which it with a company with a modern data platform.
And if you think about what capability we had that that company, which is now part of Alkami, has the ability to ingest clans, contextualized transactional data from lots of different legacy bank cores. And then you combine that with the information, the transactional information that's coming out of our digital banking application.
So now across that surface area, we have transactional data that we can analyze from more accounts than probably anybody but Bank of America right now. And so if you think about a topic like artificial intelligence, artificial intelligence is good data plus different types of models. You could have a retrieval model. You could have a classification model. You could have a predictive model.
And so what we're able to do with our customers is have this great data set that we've been able to do a lot of machine learning against that helps them classify their customers or members into demographic groups that allows them to target better. And then also has a predictive model in it. So they can see for them. This demographic group you want to make this offer for.
So in summary, we think that data capability is the long-term differentiation differentiator for digital banking. And we had both our own organic build from the very beginning of the company, then supplemented that with a really great acquisition in April '22, debt results in a data platform that's got an immense amount of transactions that we can do through machine learning against and apply both classification models to serve our customers.
And I'll turn to Bryan because we actually saw a lot of success in cross selling that product and in selling their product with our new logos this last year.
W. Bryan Hill
That's right. So this was definitely a differentiator for us as it related to new client wins. We had 22 of the 39 new clients that we sold in 2024 that adopted from the segment marketing and analytics product that Alex was referring to right.
Cris Kennedy
Thanks for taking the question.
Operator
Adam Hutchkiss, Goldman Sachs.
Adam Hutchkiss
Great. Thanks for taking my questions. It would be great to talk a little bit about the broader industry and Tom, Alex and Bryan, what you're hearing in your customer conversations around bank IT budgets for the year. Anything correct yes.
Alex Shootman
Like I said in my in some of my remarks that the prior the priority for the customers that I talk to are around really three big things. One is reducing friction. So how can they take an end to end new customer, new member or existing customer and member looking for a new product? How can they take the friction out of that experience.
And number two is fraud. Fraud is huge on their minds. It was interesting. We had our customer advisory board together a few months ago, and we kind of created a decision framework for them to trying to understand where they were leaning for so many years. So much of what they asked us to do was to improve their customer or member experience and do certain things that would make a really great customer and member experience. Some of those things have the ability to create a threat vector.
And so you're asking them is how do you think about things date? You still leaning into customer member experience? Are you more leaning into fraud management? 100% of them said I'm unwilling to give up some of the customer, our member experience to fight fraud because fraud is just really becoming a big deal for me.
And that finally of modern money movement right of RBC is as the generations change. You know, if you look at something like a bill pay, it looks a lot like a checkbook. And so what our customers have asked us to do that. We've that we've built for them is can I have a much more modern looking money movement, a place where somebody comes in and they're selecting between four or five different options of how they can move money as opposed to going to three or four different applications that are that are unintegrated.
So any kind of friction reduction digital account opening any kind of ease of buying a product and any a lot of investment around fraud and fraud management and a discussion of the nuances between and the balancing of a good experience with fighting fraud and then providing a more modern payment experience
W. Bryan Hill
And Adam, with the innovation that's occurring through the digital banking platform that [Alex] is describing. That's the driver in the market. That's the tailwind in the market for companies like Alkami to pick up the number of new clients and the digital users that we're picking up the current providers in this space are not keeping up with them.
You know, the mega banks and some of the super-regional banks and what they're investing through their digital banking platform and that's why that's what requires the end market to look at more of a contemporary provider of services in this space, such as an Alkami, which is benefiting us in the market share that we're gaining.
Adam Hutchkiss
Got it. Thanks. That's all really useful color. And could you just remind us what the typical product roadmap looks like for versus a credit union how that land-and-expand motion differs between the two. Just curious if there's anything you've learned as some of your earlier bank cohorts have matured a bit?
W. Bryan Hill
So we're pretty early in the in the early innings of penetrating the bank market. And it really depends on the bank financial institution. So if it's a bank financial institution that's heavy leaning into commercial clients, and commercial deposits than the primary difference between a credit union and a bank is the commercial banking offering.
As it relates to the retail side, if it's a bank financial institution that's predominantly growing and has a strategy more focusing on retail clients. It looks very similar to A. a credit union, so not a lot of differences there.
Alex Shootman
Maybe you can comment Bryan on just what we're seeing from an RPU perspective between and our new logo bank and a new logo credit game.
W. Bryan Hill
Sure. So the best way to look at that is to unpack our backlog that we have going into the year. So 44 financial institutions, 1.3 million digital users and the RPU on our backlog going into 2024 is around $26 a bank financial institution or the banks that we have in our backlog. And there are 17 of them. They're averaging $31 per user compared to the credit unions, which are $23 per user.
The even $23 per user on the credit union side of our backlog, that's a significant uplift above the Company's blended averages. What's driving that is the number of products that are being adopted on the MSA and on the original sale, as I mentioned earlier, on average now our clients are adopting 18 products on the original order compare to 17 a year ago, 15 a year before that.
So much different, but what's driving the increase between a bank and a credit union is predominantly the commercial banking platform and commercial banking application difficulties.
Adam Hutchkiss
Really great color. Thanks a lot, Bryan. Thanks Alex.
Operator
Saket Kalia, Barclays.
Saket Kalia
Okay, great. Hey, guys. Thanks for taking my questions here and nice quarter.
W. Bryan Hill
Hey Saket.
Saket Kalia
Hey Bryan. Hey, listen, sorry, advance if these questions have been asked, but maybe first for you, Bryan, on the ARPU point that I read, the revenue per user that really stood out to me this quarter. And you just touched on sort of the add-on sales motion really adding more product to the existing base. Can we just talk about maybe one or two of those additional products that are what are most substantive substantial to sort of the RPU lift where
W. Bryan Hill
We're seeing a lot of product adoption is really in four areas in '23. And those are pretty consistent with '22. So in the money movement area of our platform, we're seeing nice cross-sell activity that's happening also in the customer service area, which is where you'll see some machine learning type of products that come through like chat bots and those type of things.
Security and fraud is an area where we're having some pretty strong cross-sell activity a lot of that's being driven by our ACH alert acquisition from a couple of years ago. And then, of course, segment that's contributing a lot on the marketing side of our platform and driving some adoption there. All of those products that I just mentioned are those product family groups. Those are what I would refer to as more of a richer RPU set compared to some of the other product groups that we have.
Saket Kalia
Got it. Got us. It makes sense. Alex, maybe for my follow-up for you, a lot of focus a lot of success in the bank vertical here, and I think you made some comments earlier just on the pipeline. I'm curious how is sort of the win rate? Is that in that vertical evolved? And do you feel like you're getting the reference enough reference customers to sort of to help that discussion to shorten the sales cycles going forward? Anything on that win rate and sort of sales cycles, if you have?
Alex Shootman
Yeah, from a market perspective, one of the things that we measure is what is the awareness of us as a provider and that's something that we continue to change to move still. We still have room to go there. We are consistently number one or two different credit in the market in terms of we buyer being aware that they should consider Alkami. We're currently number seven in the bank market.
So we still feel we're we are we're building a new business in that market. And so we're still making progress in terms of in terms of general awareness, we had I think we talked about this in the last call, probably a year to a year and a half ago, we had a really high win rate in the bank market, but we didn't have a lot of at bats and we said to ourselves we it's probably not good news. We actually need to see the win rate come down, which means we'll have more at bats. We had more at bats this year, the win rate came down, and that is a result of being more well known now in the bank market.
So in summary, and we have room to go to become known as a provider in the bank market and we're working on that. We got more at bats this year than we had last year. And so year over year, the win rate went down as a result of the increase increased debt balance.
W. Bryan Hill
Yeah, and second, when we look at the bank market, there's a lot of factors that drive success there. And it's not just at least at this stage, it's not just the number of new clients that we're adding. It's how are we moving the product and what's the product market fit. And as Alex mentioned, earlier in the call in some prepared comments, we had a consultant come in and they evaluated our commercial offering and we feel like we're 90%, 92% there in having the right product to reach a broad set of bank financial institutions.
We're going to close the remaining gap and in 2024. Also, it's the core integrations that you have we now have a core integration into a bank core systems. There's probably two to three more that we need to add to even provide greater density, but we're making a lot of progress in adding additional bank core integrations and then unaided awareness or share of voice.
How do you want to describe that what Alex was just describing and if you go back two years ago, we were only in 20 bank deals in 2022. We are in about 45 or so in 2023 that moved up to over 60. So now we're being invited to more deals that results in a lower win rate.
But as all three or four of these factors come together, that's ultimately how will forge success moving forward with the objective by 2026, when you look at our new the composition of the new clients that we sell in 2026, our view is half of those would be credit unions and half of those would be bank financial institutions.
Alex Shootman
And I'll just probably summarize to say there's a management team here that I've been in companies that have entered markets. And what we understand is that you can't learn to put in the front yard. And so you decide to go into market and you go start attacking that market and then you understand what you need to take as the next step. And so we're exactly where we expected to be at this point in time.
In terms of building in the bank market. We know what to do next with products with skills, with awareness with marketing, we're really pleased with the progress.
Saket Kalia
Got it really nicely done. Thanks guys.
Operator
Thank you, and our Q&A session has now ended.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may disconnect.
