Q2 Holdings, Inc. (QTWO) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon. My name is Courtney, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings Fourth Quarter and full year 2014 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Bob Gujavarty, Vice President of Investor Relations, you may begin your conference.

Welcome to Q2 Holdings Earning Call for the fourth quarter and year end December 31, 2014. I am Bob Gujavarty, Vice President of Investor Relations and with me today on the call are Matt Flake, our President and CEO, and Jennifer Harris, our CFO. As a reminder, today’s conference call is being broadcast live via webcast. In addition, a replay of the call will be available on our website following the call. By now, you should have received a copy of our press release that was distributed this afternoon. If you have not, it is available on the Investor Relations section of our website. Let me also highlighting our participation in several investor events this quarter. We will be attending the Stifel TMT Conference in San Francisco and the Raymond James TMT Conference in Orlando. Please remember that certain statements made during this call, including those concerning our business and financial outlook for the first quarter and full year 2015, the alignment of our business products and strategic direction with our customer needs, our growth opportunities and expectation, our long-term financial target, anticipate improvement in revenue, adjusted EBITDA, gross margins, operating margin and other financial measures as a strategic focus in investment our market opportunities and anticipated demand for products, the benefit of our products including our new 4.0 release and the strategic advantages they offer to our customers, including increased interaction with end-users. The ability of our new product offerings to increase our cross-sell opportunities, the anticipate benefit from our partnership with NAFCU and our momentum with credit union customers, the competitive advantage and demand for unified platform offering, continued investment in additional product offerings for our current customers and our ability to continue innovating and meeting customer expectations, future product improvements and functionality, expanded use for products by and increased revenue from existing customers, our ability to implement new customers on schedule, particularly our Tier-1 customers whose implementation are typically longer and more complex and the resulting impact on our gross margins and our data center performance are forward-looking statements. These statements are subject to a number risks, uncertainties and assumptions described in our SEC filings, including our Form 10-K for the year ended December 31 2014, which we anticipate filing with the SEC on or before March 31, 2015 Should any of these risks or uncertainties materialize or should any of our assumptions prove to be incorrect, our actual results could differ materially and adversely from those anticipated in these forward-looking statements. These statements are also based on currently available information and we undertake no duty to update this information except as required by law. Cautionary statements regarding these forward-looking statements are further described in today’s press release. During the call, we will be referring to both, GAAP and non-GAAP financial measures. We believe that non-GAAP financial measures are more representative of how we internally measure the business and they are reconciled to GAAP tables attached to our press release available on our Investor Relations website. The non-revenue financial measures we will discuss today are non-GAAP unless we state the measure as a GAAP number. Any non-GAAP outlook we provide has not been reconciled to the comparable GAAP outlook, because among other things we cannot reliably estimate our future stock-based compensation expense, which is dependent on our future stock price. With that, thank you for joining us, and I will turn the call over to Matt Flake.

Thanks Bob. I would like to start today's call by providing our financial results from the fourth quarter and full year 2014, as well as a few business highlights. I will then turn the call over to our CFO, Jennifer Harris who will give a more detailed look at our financial results and provide our outlook for the first quarter and full year 2015. We ended the year with a strong fourth quarter, generating revenue of $22.1 million, up 41% from a year ago. Total revenue for the year was $79.1 million, up 39% from the previous year. In addition, we are pleased to announce that we ended the year with $4.3 million end users marking a 39% year-over-year increase. 2014 was a monumental year for Q2 and I want to be sure to thank our customers for that success. In 2014, we celebrated our 10th anniversary, a milestone made possible by our customers' continued trust in Q2. We believe in strengthening communities through their financial institutions and we see that goal being realized every day by our customers' success. I would also like to take a moment to recognize our employees. We believe that their passion and dedication is truly what makes Q2 a unique company and it is critical to our continued success. 2014 was a year of big accomplishments across the organization, starting with our successful initial public offering in March, the success of our IPO not only reinforce our commitment to our customers and our mission, but has directly impacted our momentum in signing new customers and help to provide resources to further innovate on the platform. The IPO help lead to a record year for us in terms of sales execution, we saw great success across all of our target markets as our single platform continues to gain traction, affords unique ability to keep customers engaged with their end users, strengthen their brand and drive down cost of ownership associated with virtual banking technology, all while operating under integrated multi-layered security. Last quarter I announced our partnership with the National Association of federal Credit Unions, making our single platform their preferred solution for online and mobile banking. During the fourth quarter, we saw this and also begin to positively impact our momentum in the credit union space, translating into the largest credit union bookings quarter in the history of the company. I am also excited to announce that we added two more Tier-1 institutions in the fourth quarter. One, a top-20 credit union in the Southwest, the other a leading bank in the Western United States, these new customers are our fourth and fifth Tier-1 addition in 2014, an overachievement on our annual goal and a positive reflection on the scalability of our platform. I would like to discuss the Tier-1 bank win in more detail. To shed additional light on why we are succeeding in the market, as we have seen so many times in the past Q2 single platform approach is really what resonated with this bank. Moving from completely disparate products for online mobile, commercial and security onto a single platform will enable the bank to do several things. First we will be able to consolidate back office systems, driving down cost of ownership and simplifying operations Second, we will be able to provide modern and unified user experience across devices, promoting their brand and improving customer loyalty. Finally, they will have one unified integrated security solution, protecting them and their end users across virtual channels. Full replacement wins like this has become increasingly common for Q2, and this is just one example of how the single platform led to a record year for our sales organization. 2014 also saw a significant expansion and innovation of our platform. At the end of the second quarter, we released version 4.0 of the platform, an industry-defining release, aimed at directly helping customers drive increased utilization by providing an unparalleled user experience and acquire valuable commercial accounts by providing full global commercial functionality. I am pleased to report that the new release has already begun to drive increased utilization of the platform. Customers who have adopted 4.0 are seeing a notable increase in the end user logins, with particular strength from mobile devices. We also collected [ph] 39% growth in end users on our system in 2014, which represents our ability to deliver new customers as well as the organic end user growth from existing customers. I am also excited to announce the launch of our treasury product in the fourth quarter. This new product is our entry into the treasury space and it is an expansion on our already successful commercial banking functionality. Treasury refers to a week broader set of commercial tools that enable financial institutions to service large commercial accounts that require more complex functionality than small to mid-sized businesses. For our customers, the addition of the treasury offering will support them in acquiring valuable commercial accounts from money center banks. For Q2, treasury represents a tremendous cross-sell opportunity for us to expand our product footprint with current customers and further equips us to continue acquiring more market share. I am encouraged by these recent expansions to the platform; the rollout of treasury speaks directly to the agility and leverage of our single platform and our ability to expand our product to continue meeting the needs of our customers. I am excited with the pace of our innovation and our customers' eagerness to continue gaining market share by using our technology. In 2015, we will continue to add new customers and expand our relationships with existing customers. Our average initial customer contract terms are in excess of five year, but a relationship with customers goes deeper than that. In 2014, over 40 of our customers chose to extend their contracts with us and on average those customers had 29 months remaining on their initial agreements, reinforcing the 10 years into the business, our product and our strategic direction remain aligned with our customers' With that, I will hand the call over to Jennifer to discuss our financial performance.

Thanks, Matt. We are pleased to have delivered fourth quarter revenues that exceeded our guidance. I will briefly review our results for the fourth quarter before finishing with updated guidance for the first quarter and full year 2015. Total revenue for the fourth quarter was $22.1 million, an increase of 41% year-over-year and up 6% from the previous quarter. Revenue for the full-year 2014 was $79.1 million, up 39% year-over-year. Our increased revenue in the fourth quarter was principally the result of strong growth in subscription revenue. Subscription revenue benefited from new customer go lives in the quarter as well organic user growth from existing customers. Transaction-based revenue increased in actual dollars, but continued to decline as a percentage of total revenue. Transaction revenue represented 22% of total revenue in the fourth quarter, down from 23% in the year ago period. We continue to see strong growth within our existing customer base as they expand their use of our platform. Organic user growth and cross sales of more products to our existing customers contributed to 122% revenue retention rate for the full-year 2014, down slightly from 128% in 2013. The lower revenue retention was not unexpected, and largely due to a single customer that was acquired by a larger financial institution in mid-2012 and migrate off of our platform in the first quarter of 2014, therefore negatively impacting revenue retention. As a reminder, this metric compares revenue of all customers at the end of the previous year, with the revenue from that same group of customers at the end of the current year. It therefore measures the growth of our business within customers existing at the end of the prior year net of attrition. We believe revenue retention speaks to the success of our customers and Q2's ability to grow revenue from our existing customers over time. We ended the year with 351 customers live on the Q2 platform, up from 334 customers at the end of 2013. Our revenue churn for the full year 2014 was 4.8%, up from 3.5% in 2013 and below our goal of 5%. The higher churn was primarily due to the customer I referenced earlier when discussing revenue retention. I would point out our controllable churn, which excludes the impact of mergers and acquisitions remained below 3.5%. As we turn to gross margin and operating expenses, please note that unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis. Gross margin was 42.8%, up from 31% in the fourth quarter of 2013 and essentially flat from 42.9% in the previous quarter. I would note that the fourth quarter 2013 gross margin was negatively impacted by a one-time charge related to phase [ph] out to a data center vendor regarding past use of intellectual property. Excluding this impact, gross margin would have been 37.8%. The year-over-year improvement was primarily attributable to growth in prescription revenue and increased productivity of headcount and data center investments made in 2013. For the full year 2014, gross margin was 42.6% compared to 38.6% for the full year 2013, excluding the one-time charge in Q4 that I discussed earlier. As I mentioned last quarter, our success and continued momentum within the Tier-1 space, including the two new Tier-1 deals signed in the fourth quarter will require continued investment in our implementation organization, which will keep gross margins relatively flat in the first quarter of 2015, but we remain on track and are committed to delivering annual improvements in gross margins. As a reminder, gross margins will vary from period-to-period, depending on factors specific to each period, such as the amount of implementation services required to deploy our products relative to total contract value, timing of new customer go live and the mix of internal and third-party product revenue. Turning to operating expenses, we continued to invest in our business and added headcount in focused areas, including our sales force, product development and implementation teams. Total operating expenses were $12.6 million, up 18% from a year ago and up slightly from the previous quarter. We ended the year with 501 employees compared to 425 at the end of 2013. Sales and marketing expenses were $5.7 million, up 17% year-over-year and up 4%, sequentially. Both, the year-over-year and sequential increase were primarily due to investments in headcount. Research and development spending was $3.2 million, up 21% year-over-year and up 7% from the previous quarter. The increased R&D spending year-over-year and quarter-over-quarter reflects increased headcount to support an expanded product roadmap for 2015. General and administrative expenses were $3.7 million, up 18% from a year ago, but 5% from the prior quarter. We added G&A headcount in 2013 in preparation for becoming a public company and will continue to invest as the business grows, but we expect the pace of growth to moderate. The sequential decline was driven by a slight decrease in employee and related benefit cost as well as lower spending on travel and professional services. I would point out that G&A spending was slightly less than 17% of revenue in the fourth quarter, down from 19% of revenue at the beginning of the year. Adjusted EBITDA was negative $2.2 million, an improvement from negative $2.3 million in the previous quarter. The improvement was driven primarily by the higher than anticipated revenue adjusted EBITDA for the year was negative $10.4 million, a 15% improvement from negative $12.3 million in 2013. We ended the quarter with cash, cash equivalents and investments of $88.9 million. Cash flow from operations for the fourth quarter was negative $1 million. The company incurred net capital expenditures of $1.2 million during the quarter, which was largely offset by proceeds from employee stock option exercises. Our deferred revenue on December 31st was $36.7 million, essentially flat from the previous quarter. I would like to remind you that we bill our customers for their subscription fees on a monthly basis; therefore we do not believe it is meaningful to look at deferred revenue as an indicator of future revenue. Any increase in deferred revenue reflects customer deposits collected during the quarter, partially offset by revenue recognized during the quarter for services engagement. Let me wrap up by sharing our first quarter and full year 2015 guidance. We forecast first quarter revenue in the range of $23.2 million to $23.8 million and full year revenue in the range of $104 million to $106 million, representing 31% to 34% year-over-year growth. We forecast first quarter adjusted EBITDA of negative $3 million to negative $3.5 million and negative $9.5 million to negative $11 million for the full year 2015. We expect headcount additions across the organization as we continue to grow sales and investment in implementation capacity and an expanded product roadmap. This will moderate the pace of adjusted EBITDA improvement in early 2015. However, revenue growth and improved margins will combine to deliver meaningful improvement in the back half of the year. In summary, 2014 was a strong year of continued execution. As we enter 2015, we are excited about the large market opportunity ahead of us. Q2 it well positioned to deliver strong top-line growth and annual improvements in margins as we march towards our long-term target. With that, let me turn it back over to Matt for his closing remarks.

Thanks, Jennifer. I would like to close by saying that I am pleased with our strong fourth quarter, which wrapped up a record year for Q2. Going forward, we will look to continue executing on the formulas that led to our success, picking up the phone when customers call, installing new customers on or ahead of schedule, maintaining world-class data center performance and continuing innovation of the platform to ensure we remain one of our customers' most important technology partners. I speak for the team when I say we are excited about the opportunity ahead of us and we look forward to continuing to delight our customers, employees and investors in 2015. With that, let me turn it over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Sterling Auty with JPMorgan. Your line is open.

Thanks. It is Darren Jue on for Sterling. I am just wondering if you could talk a little bit about what you are seeing in terms of pricing on new implementations. If could maybe also talk about those 40 customers who extended their contracts, did those extensions come at better pricing for you?

I will take the 40 customers question. Each one of them has a life of their own. and they were all their own renewals, but in general our philosophy is if you want to extend contracts at MRR and put more products into the customer that can either add adoption or associated MRR with that, so with the rate of 122% clearly there were an increase in fees, but like I said all of them had their own life, but yes it was definitely a positive from our perspective. Jennifer you can help.

Yes, so this is Jennifer. I will take the implementation pricing question. We do not comment on pricing on particular deal, but I will remind you that we raised services pricing in 2013 and we didn't see any pushback on that and '14. We were able to get the pricing that we got, went to the customers with. In addition, as we moved up market to Tier-1 customers, those types of customers are more willing to take the services on a T&M basis, so we do not have the pressure that we had on the smaller fixed fee engagements.

Okay. That is helpful. Maybe if you could also talk about if there is any update in terms of when you guys expect to be cash flow positive?

As we have mentioned in our long-term model before, we believe that if we continue to sign the same mix and sizes of customers that we signed over the last 12 to 18 months, that we can get to our target margins and target operating income in a span of, say, five years and cash flow positive will come much sooner than that, because we do collect the cash from our implementations upfront while we recognize that revenue over time. I do not expect to be cash flow-positive in 2015. I expect you may see some quarters of cash flow positive in '15 and '16.

Okay. Thank you.

Thanks, Darren.

Your next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is open.

Thanks for taking my question, guys. Congrats on the strong close to year here. Matt, I am wonder if you can give us a few more details on the new treasury product. It sounds interesting, maybe some really data feedback, potentially what an up lift to pricing you might expect to have added to an existing account?

Yes. Thanks, Matt. The treasury product is an exciting addition for us. When you think about what it really means is that we are going to help our customers compete. They are going to be able to take market share from money center banks as well as enhance their relationship with their existing customer. For us, when you look at what the impact is going to be on the business, I think you are going to see it help us take our pricing up and help us win some new deals with existing customers. We are going to have a product to cross-sell that is an up lift in pricing, maybe not from our rate perspective, but more users come on, so there will be a lift in that as well as they add more users, there will be increase in fees. It also helps us deepen the relationships with the customers, so extended contracts, increased usage, all those things, so it is a positive. From the features perspective, you are going to see the ability for customers that have broader entitlements engine, information reporting and more payment types.

Got it, it is helpful. Given your exposure to Texas banks, I am wondering if you could help us maybe comment on the impact of falling oil prices if they stay at some of these depressed levels for a period of time.

Right. I do not have a crystal ball, but I have talked to some of our banks about this. I think, in general, their message to us is Texas is a much more diverse economy; the most people get a credit for. I will tell you that if you look at our business, one of the things that is important to understand is, there is not a single customers that represents more than 3% of our revenue and our top 10 earn [ph] even 20% of our revenue and we have a geography, customers all over the country. I would also add that, if you think about some of the resiliency of our business model, 2008, 2009 and 2010 were pretty tough years in the banking space. We grew at 30-plus percent in each of those years. With that I am comfortable that the energy pricing issue is not going to have a meaningful impact on our business.

Great. Very helpful. Thanks a lot and congrats again.

Yes. Thanks, Matt. I appreciate it.

Thank you.

Your next question comes from the line of Tom Roderick with Stifel. Your line is open.

Hey, guys. Good afternoon. I want to just go back and address the Tier-1 wins, two more this quarter, next five for the year. There has definitely been a lot of momentum in that arena for you. I would love to hear a little bit more about what is sort of driving that is acceleration, added sales reps that are sort of more qualified to handle these opportunities or you are at a scale now where you can support more of these types of wins with services and other types of fees. As you look into 2015, last year you gave us a little bit of a guide for the number of the target that you sort of hoped to win, which is three. Do you have any sort of similar number in mind for this year?

Yes, so let me walk through that a little bit. I think if you think back '14 was the year for us, where we wanted to establish a presence as well as credibility in the Tier-1 space. Some of the things you mentioned, we added a sales organization that had experience and relationships in that space, which always helps. We had an IPO, so the transparency to balance sheet made it a lot easier for Tier-1s to be able to do business with us. Then we have a platform that solves a lot of their problems when you think about, they had the same issues that a small community bank does with cost and then the transformation that is going on around, a consistent user experience on all the devices isn't fully functional. With that said, we are extremely pleased with the momentum we have in the Tier-1 space. Last year, we gave that target to make sure you guys understood we were serious about it externally as well as internally. For '15, we are not going to do targets just because public targets put us kind of in a tough negotiating situation with prospects. I am excited about the momentum and we are going to continue to update you on strategic wins in '15, but we are not going to give a number just for all those reasons.

Got it. In terms of the sales cycle attached to, how are you like, Tier-1 are bigger deals out there. Are you seeing the sales cycle shorten up is there any sort of driver behind that?

I can't say I have seen the sales cycle tight now. I cannot tell you that I have seen us being included in significantly more evaluations and getting in early is always important for us. You combine that with the sales team that we have in the Tier-1 space, which has a lot of experience, they have been in the space before. I am hoping that we can shorten up the sale cycle, but some of these things sometime it just takes the time it takes for them to do their due diligence and make a decision.

Got it. Last one from me. Can you just talk a little bit more about the competitive, particularly as it relates to the core processors that you both interface with and compete against? Also, thinking about the Digital Insight, which is going on combined with NCR at this point?

There is no material change in the competitive landscape. Core processors, we can still continue to compete and partner with them depending on the situation and there is no change there. Digital Insight, which is owned by NCR now, it is consistent. We continue to compete with them in the marketplace. I don't see them all a lot of net new deals, but they do have a lot of customers out there that we are actively pursuing to try to convince them that our platform is a better solution.

Got it. Thank you, guys.

Thanks, Tom. I appreciate it.

Your next question comes from the line of Terry Tillman with Raymond James Your line is open.

Hey, good afternoon. Thanks for taking my questions. I guess the first question, Matt, and following up to Tom's question and the other question on Tier-1. Sorry for this background noise, but last couple of quarters you have given some updates on the earlier wins. One thing to win deals then to get them up and live and successful, one of them that I wanted to ask about is Umpqua, which they did talk about the virtual banking initiatives on their call last week. Could you give us an update on where you stand in terms of recognizing revenue and any kind of milestones on potential ramp further in that business specifically?

Yes. I have, with the Umpqua business, in particular?

Yes.

Yes. I will talk about the project and Jennifer can talk about the revenue. First of all, the Umpqua team and the Q2 team had worked really well together that it is a fantastic group of people over there and our team has just done a fantastic job as well. We had a minimal amount of users that went on the system in the fourth quarter. We are going to put the majority if not all of the Umpqua users on the system this quarter. We have put a pretty big chunk on them already and we are going to continue to add those over the quarter. From a milestone perspective, we want to get the legacy Umpqua customers on and they were going to move the Sterling Bank, which acquired 18 months ago. We are going to move their users on as well in the quarter I believe a little bit into the second quarter. As far as the revenue goes, Jennifer, you want to tackle that?

Yes. I would just remind you that our contract includes minimums and they had fairly large minimum, so they have been rolling into revenue since Q2 of 2014. You will see some incremental revenue, especially probably in the back half of '15, as they bring those additional Sterling users on, because that bumps their minimum up higher for the Sterling users. Then as they begin to approach their minimums and exceed those as they have more rollout to their existing customers, you will see incremental usage from that in the back half of the year.

Okay. Great. I guess, Matt, as it relates to your sales force and just coverage, where do you think you are underrepresented? You have obviously Tier-2, which is the community bank as well as credit union then you have Tier-1. I am asking in relationship with '15 and your plan for hiring. Where should we see more of your sales force resource investment?

Generically, I think with the success we are having, you are going to see us see us add more in the Tier-2 space. We have said that as we double the sale force in '13, we are not going to need to do that again, but I would think that you are going to see about a 30% increase in the sales organization in '15 and that is going to be Tier-1, Tier-2 and the upper end of Tier-3. I want to make sure we take advantage of all the opportunities that are out there and our story is resonating, so the better sale people we get, the more of those wins we are going to have.

Okay. My last question is for Jennifer in terms of transaction revenue as a percentage of total revenue. How do we think about that into '15? Then maybe that in relationship to thinking about what kind of gross margin we should actually be modeling for the full year? Thanks and nice job on the quarter.

Thanks, Terry.

Yes. I will address the first part of that question. First, transaction revenue decreased for the full year this year to 22% or 23% of revenue, down from 24% in 2013. I mentioned on the last quarter's call that the three Tier-1s signed early in the year; none of those had bill pay on our paper. That is the same for the two that we that we signed this quarter, so all of the Tier-1 as they start rolling on, will have the lower margin bill pay revenue associated with them, so I think you will continue to see transaction revenue as a percentage of total trend down. It won’t completely go away, but they will trend down as the larger deals that do not have bill pay start rolling in to the revenue stream and that will have a positive impact on margins, obviously. As far as margins in 2015, we obviously don't guide the gross margin, but as I mentioned on the call, I would expect the pace of gross margin improvement in the first half to moderate and be relatively flat with what we have experienced the last couple of quarters because of the investment that we have made in the Tier-1 space, but I do think you will see some meaningful improvement in the back half of the year.

Right. Thanks.

Your next question comes from the line of Richard Davis with Canaccord. Your line is open.

Thanks, guys. It is actually DJ online for Richard. First, Jennifer, I just wanted to clarify number. The number of installed customer at the end of the year, can you please repeat that number?

It was 361 installed customers at the end of '14.

Got it. Okay, so that is less than you guys, I guess brought live in 2013. Is there a way, my sense is that number doesn't capture the strength of the bookings activity. Obviously, there is a lag to bringing these customers live. Is there a way you can help us think about or quantify kind of the number of customers in the implementation backlog versus kind of the where you stood last year at this time?

Yes. First of all I would say, it is not necessarily that the number of installed customers went down. The number of installed customer that we deployed in the year actually went up. You have got to remember that that number is net of any churn during the year and we lost some of the smaller customers, because of pricing issues this year, so I would said that we actually had a growth in the number of customers that we installed. I think it is more important to look at registered users rather than number of installed customers and that experienced a 39% year-over-year growth.

Okay. Got it. That is helpful. On the treasury product side, help me to understand, if you are going back into an installed customer with this functionality, are you replacing something that they already have or is it just functionality that regional banks largely doesn't have. As a competitive landscape at all different with treasury management versus kind of your core functionality?

It depends on the financial institution. Some financial institutions have treasury products, which offer more a sophisticated cash management functionality. In those cases, we will be taking some of their customers off, the customer that are larger than small business customers, so we will be replacing taking some of them off of that system. Some banks and credit union do not have that treasury functionality at all, so it will be a new product for them to add. Then as far as the competitive landscape goes, there is same group of competitors that we have today, they just have products that they primarily acquired in the past 20 years. They have been doing, providing treasury feature functionality.

Okay. Got it. All right. Thanks a lot, guys.

Thanks, DJ. Appreciate it.

Your last question comes from the line of Michael Huang with Needham. Your line is open.

Thanks very much. Good afternoon, guys. Just a couple of quick ones for me, and I apologize if I miss this. In term of the new Tier-1 that you are bringing on, can you talk about or did you share how large these are from an online user base standpoint as I am trying to think about what could be the contribution to registered users over time. Then did you talk about when these should start hitting the model?

We do not share the end-users there are Tier-1 spaces between $5 billion and $50 billion for us and one on with the top 20 credit union, so that information we do not disclose. Then as far as when they should go live, they should fall into the same category as the Tier-1s we signed in the begin of the year about 12 months give or take a couple of months as long as something an acquisition or something like that doesn't occur in the middle of the process.

Okay. Then another follow-up on treasury, are you able to share a least kind of the average, the profile of the early adopter of treasury. I mean, who are some of the guys that you have kind of been working with early on this product?

I do not give the names out, but I will tell that the profile is typically a community bank that has some, either a treasury product in place today and they want to start to move some people off of that, because it is going [ph] it does not work our modern browsers. It does not have mobile and tablet functionality or a bank that is looking to expand their treasury offering and going to get larger businesses in their communities, so that is in the profile, the majority of them that we have been working on and we will continue to try to find those. We have got our annual client conference in April, and we look forward to showing a lot of the customers what the features and functionality is and we should get a big lift out of it there as well.

Okay. Is this a feature set that is ready yet for the Tier-1s or is that is later on in the future roadmap?

It is ready for the Tier-1s.

Got you. Okay. Then last question for me. Obviously, great growth in terms of registered users, do you have a sense generally of kind of what the penetration of the overall user base is across all your clients would be? I mean any sense of kind of where you are with respect to kind of what their total basis are?

Yes. We generically say that and each financial institution is different, but if you think about the number of people that use legacy classic Internet banking than include mobile tablet, it is about 50% of the accountholders use, have a login ID and a password to that. Mobile is significantly less than that growing faster and then tablet is obviously less than that. We think from an end user perspective, we are about 50% penetrated in the market and that is of the existing base. Keep in mind, credit unions are adding new members all the time through people that don't want to bank with money center banks, so the opportunity is tremendous for us to continue adding users.

Okay. Just the general growth kind of within your clients, I mean, are you seeing any acceleration respect to how fast that they are driving their users to online or to mobile?

Yes. I commented in the script regarding 4.0, and what was interesting to us in 4.0 was that we are seeing significant uptick in the amount of usage that goes on and that is primarily on mobile and tablet, but it is not replacing the desktop usage, so it is on top of that. I think the reasons for that, I would say were we put a lot of time and energy to design and making it look pretty over the last 12 to 24 months. They have done a fabulous job of making it look better every day, which is an ongoing process. We have full functionality features that you can do on a desktop, you can do on a mobile phone and they look like they were designed with somebody who was thinking about how would I do this on a mobile phone. Then lastly, one of the things that I have found interesting with our customers is, when they use our product, they go from an apologetic state about having old antiquated technology, which they had from other vendors too, hey, we are excited about this, we are going to tell our customers about it or lender are going to be talking about it and they are using it as a weapon rather than a shield. All of that is worth noting that that drive that 50% number up. It allows them to acquire new customers and on top of that it gives the bank something to talk about other than they just provide great service, so it is really encouraging and that is a complement to our development, product group and our implementation staff and the whole team on how they are building new products.

Great. Thanks. I appreciate it

Thanks, Michael. I appreciate it.

Ladies and gentlemen, thank you for joining. As there are no further questions, this will conclude today's conference call. You may now disconnect.