Q2 Holdings Inc (QTWO) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Sally, 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 results conference call.

(Operator Instructions)

Mr. Bob Gujavarty, you may begin your conference.

Welcome to Q2 Holdings' earnings call for the fourth quarter and year ended December 31, 2015. 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 have should received a copy of our press release that was distributed yesterday afternoon. If you have not, it is available on the Investor Relations section of our website.

Let me also highlight our participation in several investor events this quarter. We will be attending the Morgan Stanley TMT conference in San Francisco, the Raymond James Institutional Investor conference in Orlando, and the Northland TMT conference in New York.

Before beginning, we must caution you that today's remarks in this discussion, including statements made during the question-and-answer session, contain forward-looking statements. These statements are subject to numerous important factors, risks, and uncertainties which could cause actual results to differ from the results implied by these or other forward-looking statements. Also, these statements are based solely on the present information, and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. For additional information, please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein, and other disclosures. We do not undertake any duty to update any forward-looking statements.

During this call, we'll be referring to both GAAP and non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business. They're reconciled to GAAP in the tables attached to our press release, available on our investor relations website. The non-revenue financial measures we'll discuss today are non-GAAP, unless we state the measure is 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'll turn the call over (technical difficulties).

Thanks, Bob, and thanks to all of you for joining us on our fourth-quarter 2015 earnings call. I would like to start the call by sharing some financial and business highlights from the fourth-quarter and full-year 2015. I'll then turn the call over to Jennifer, our CFO, who will give a more detailed look at our financial results and provide our outlook for the first-quarter and full-year 2016.

We ended the year with a strong fourth quarter, generating revenue of $30.4 million, up 37% year over year. Revenue for the full year was $108.9 million, up 38% year over year. We also added more than 300,000 users in the quarter, ending the year with 6.3 million users on our platform, a 46% increase year over year.

2015 was a record-setting year for Q2. We added approximately 2 million users to our system, generated record revenue quarter to quarter, and closed on the first two acquisitions in Company history. We continue to grow the organization, ending the year with 658 employees and growing our presence in multiple locations. We added quality customers from all of our target markets, achieving another consecutive year of record sales execution.

As the banking industry continued its transformation to a digital self-service model, our single-platform story continued to resonate with banks and credit unions, large and small, whose goal is to use technology to compete and grow. We saw continued strength in the Tier 1 space, where we set out to establish ourselves over the last few years. With the signing of two additional Tier 1 banks in the fourth quarter, we brought our total to seven Tier 1s added in 2015. And our success in this space over the past few years gives me confidence that we have established our platform as a leading solution in all of our target markets.

One of the Tier 1 additions from the fourth quarter is an $8 billion bank located in the southeastern United States. I would like to provide some color around this win to demonstrate how we are competing in this market. This particular bank had undergone rapid growth as a result of M&A activity and required a modern digital banking solution that would enable them to compete for commercial and retail business in their new markets. Their previous solution provided by their core vendor had been slow in updating its user experience and feature functionality to meet its customers expectations. The bank made the decision to separate their back-office systems from their customer-facing technology in order to provide a premium front-end solution. With mobile commercial functionality and a superior user experience, all on one platform, the bank chose Q2 for a full platform replacement of their previous solutions. As a result, the Q2 platform will replace five legacy front-end systems at the institution, and add our risk and fraud analytics product.

Another key win from the quarter was a Tier 2 credit union on the West Coast that also decided to transition away from its core provider's front-end software. Located in the tech-savvy Bay Area, this credit union has an active and mobile membership base that had become dissatisfied with the limited functionality and disparate user experience of their current solutions. Similar to the bank I mentioned, this credit union chose Q2 for a full platform replacement in order to provide their members with a modern, consistent user experience across all channels.

Wins like these, where financial institutions are choosing to separate their front-end and back-end systems, have become increasingly common and are a sweet spot for Q2 where our single-platform architecture competes very well. These wins in particular also demonstrate the continued expansion of our geographic footprint, a key characteristic of our sales performance in 2015.

Product delivery was also a key focus in 2015. Deploying modern technology is not easy. Keep in mind that implementing and upgrading our software involves the financial institution, their employees, and their account-holders. It can be challenging and time consuming, which is why I want to thank our customers and employees for all of their hard work in 2015.

In the midst of upgrading millions of users to our latest release, 4.0, our implementations organization continued to install new customers at an impressive rate. As I mentioned earlier in the call, we added approximately 2 million users to the platform in 2015. Put this in perspective. At the time of our IPO in the first quarter of 2014 we had just over 3 million users on the platform. As evidenced by our strong year of new and organic user growth, low revenue churn, and record data-center uptime, we have continued to invest in building out our infrastructure and scaling the delivery organization. Our ability to deliver software reliably is core to our mission and a cornerstone of our success, and will remain a focus going forward.

Finally, as I mentioned earlier in the call, we successfully closed two acquisitions in 2015. I'm pleased with how both Centrix and Social Money have continued to perform as we continue to integrate them into the organization. Last quarter, I mentioned Centrix' growing pipeline, and I'm happy to report that Centrix had a strong fourth quarter, adding two Tier 1 customers and recording one of their strongest sales quarters to date. During the fourth quarter, we also announced the acquisition of Social Money. And I believe their technology portfolio represents a real opportunity for our customers to acquire new account-holders, grow deposits, and provide an effective account-holder on-boarding strategy. In addition to adding their innovative solutions to our portfolio, we are excited to welcome Social Money's team of talented, passionate individuals to Q2.

In closing, I'd like to set the stage for what I believe will be another year of continued growth in 2016. We intend to continue leveraging the sales force to add strategic new customers and expand our relationships with existing customers. We will also continue to innovate and develop new products as we maintain our focus on great product design, mobile functionality, and how to help our customers leverage the wealth of data running through our platform. We are excited about the new product innovations we intend to bring to the market this year.

With that, I'll hand the call over to Jennifer to discuss our financial results.

Thanks, Matt. We are pleased to have delivered fourth-quarter revenue that exceeded our guidance, combined with another quarter of solid gross margin improvement. I will briefly review our results for the fourth-quarter and full-year 2015, before finishing with updated guidance for the first-quarter and full-year 2016.

Total revenue for the fourth quarter was $30.4 million, an increase of 37% year over year, and up 9% from the previous quarter. Revenue for the full-year 2015 was $108.9 million, up 38% year over year. Our increased revenue in the fourth quarter was principally the result of strong growth in subscription revenue. Subscription revenue benefited from both organic user growth from existing customers as well as new customer go-lives in the quarter. Transaction-based revenue increased in actual dollars and represented 19% of total revenue in the fourth quarter. For the full-year 2015, transaction revenue represented 20% of total revenue, down from 23% in 2014.

Our revenue churn for the full-year 2015 was 3.5%, down from 4.8% in 2014 and well below our goal of 5%. 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 additional products to existing customers, combined with the low revenue churn, contributed to 122% trailing 12-month revenue retention rate for 2015, consistent with the 122% we posted in 2014. As a reminder, this metric compares revenue of installed 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.

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 48.4%, up from 42.8% in the fourth quarter of 2014 and up from 47.7% in the previous quarter. The year-over-year improvement was primarily attributable to growth in subscription revenue and increased productivity of headcount and data-center investment. For the full-year 2015, gross margin was 47.3%, up sharply from 42.6% in 2014. And, as expected, the lower costs of the result of the Centrix acquisition contributed to the year-over-year and sequential gross margin improvements.

We continued to invest in implementation personnel to support our success within the Tier 1 space, including the two new Tier 1 deals signed in the fourth quarter. Given the investment in headcount in the first quarter of the year to support that annual growth, I expect gross margins to be relatively flat in the first quarter of 2016 before contributing solid improvement in the second half of [2016]. As we've stated since going public, we remain committed to delivering annual improvements in gross margin.

Turning to operating expenses, we continued to invest in our business and added headcount in focus areas including our sales force, product development, and implementation teams. Total operating expenses were $18.3 million, up 44% from one year ago and up 7% from the previous quarter. We ended the year with 658 employees, up from 501 at the end of 2014. Sales and marketing expenses were $6.6 million, up 17% year over year and up 6% sequentially. Both the year-over-year and sequential increase were primarily due to investments in headcount.

Research and development spending was $6.1 million, up 88% year over year and up 7% from the previous quarter. The increased R&D spending year over year and sequentially reflects increased headcount to support an accelerated product road map. The year-over-year increase also included a shift of resources from customer support and implementations activities to forward software development, thereby reducing the allocation of engineering resources classified as cost of sales and increasing the research and development operating expenses. The acquisition of Social Money contributed modestly to the sequential increase, as we added five developers in December.

General and administrative expenses were $5.5 million, up 47% from a year ago and 10% from the prior quarter. The sequential increase was driven by increase in the annual bonus accrual based on over-achievement on Company objectives, select hiring, an increase in professional services and the acquisition of Social Money.

Adjusted EBITDA was negative $1.9 million, an improvement from negative $2.2 million in both the previous quarter and the year-ago period. The improvement was driven primarily by the higher-than-anticipated revenues, partially offset by the addition of headcount from the Social Money acquisition and the higher G&A spending mentioned previously. Adjusted EBITDA for the year was negative $8.1 million, a 22% improvement from negative $10.4 million in 2014.

We ended the quarter with cash, cash equivalent and investments of $110.6 million, down from $119.9 million at the end of the third quarter. Cash flow from operations for the fourth quarter was a record $5 million. The Company incurred net capital expenditures of $3.6 million during the quarter and approximately $8 million related to the previously announced acquisition of Social Money. For the full-year 2015, we generated positive operating cash flow of $5.4 million, a significant improvement from negative $5.3 million for the full-year 2014, and well ahead of plan.

Our deferred revenue on December 31 was $52.2 million, up from $49.9 million in the third quarter. The 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 2016 guidance. We forecast first-quarter revenue in the range of $32.7 million to $33.3 million; and full-year revenue in the range of $144.5 million to $146.5 million, representing 33% to 35% year-over-year revenue growth. We forecast first-quarter adjusted EBITDA of negative $2.7 million to negative $3.2 million; and negative $3.5 million to negative $5 million for the full-year 2016. We expect headcount additions, seasonal factors including payroll taxes associated with annual bonus payments and our annual customer conference held during the second quarter to impact the pace of improvement in the first half of 2016. But we expect to deliver positive adjusted EBITDA in the fourth quarter.

In summary, 2015 was another strong year of continued execution as the Company delivered strong top-line growth, record gross margin, and positive operating cash flow while continuing to invest in key initiatives which position the Company for continued success in 2016.

With that, let me turn it back over to Matt for his closing remarks.

Thanks, Jennifer. In closing, we are 11 years into this business. And 2015 was successful on many fronts as we grew revenue 38%, signed seven Tier 1 financial institutions, generated positive operating cash flow, and made investments to support our continued success. I'd like to take this opportunity to thank our customers for believing in us, our employees for the passion they bring to work every day, and our investors for their continued support.

With that, let me turn it over to the operator for questions.

(Operator Instructions)

Sterling Auty, JPMorgan.

Let me ask one question and one follow-up. To start with, on a very high level, I'm curious in terms of your conversation with the customers that you just closed, as well as those that are in the pipeline. Although it doesn't feel like a rising interest rate environment today with what the market is doing, I think generally we are all thinking about where the Fed's head is at and raising interest rates. How does that impact the thinking of your customers in terms of system modernization, and maybe as interest rates go up being a little bit healthier financially and have a little bit more resources to invest in system modernization?

Thanks for the question. They've lived in a zero, very low interest rate environment for a long time now. We have as well. So we have grown -- this business has grown 30% plus, every year for the last 11 years. For us, when we have the conversations with them, they are looking forward to the rates going up. But they've been able to operate in this environment. At the end of the day, they are focused on digitizing their experience for their customers. This is not really a discretionary spend for them because they have to go and address this transformation that's occurring where they have to be able to service their customers, whether it's on a mobile phone or a desktop or a tablet.

And that's really what we provide for them. It is a priority for them to go and to build these systems out. And that's why you see us being so successful in this area. I would say that the bank spending remains steady and squarely focused on digitizing the bank. And all of them, when we talk to them about it, are excited about not only the customer experience but the operating efficiency they are going to get out of putting in a single platform. Like I mentioned in my comments earlier, the Tier 1 bank that we signed, they replaced five legacy systems by putting our platform in. So they became more efficient, and their customers had a better experience.

That makes sense. My follow-up question would be, looking at the revenue retention, how much of that revenue retention is coming from the pure growth in the number of subscribers that are being put -- or the number of depositors being put onto your system, either from just the efforts of your customers' advertising and marketing the -- what they have available or through M&A or through pure growth versus upsell, meaning maybe can you give us a sense of what is the average customer have in terms of number of solutions within your portfolio?

As far as the amount of that increase that's coming from just the organic user growth within the customer, that has remained relatively consistent with our historical trends, in the high-single digit to low-double digit. So kind of that 9% to 11% per year range. So roughly half of that number. The remainder comes from increased cross-sales, increased functionality that we are selling into the existing customer base. And then that's partially offset by the churn that's experienced within that customer base as well.

As far as products, we've got about 35 different product SKUs. We've got a lot more in the works that are coming. But if you look at our current adoption, in general most of the customers have only about 8 to 10 of those, with our highest customer at the time being in the high 20s. So, there is still lots of room for growth within the existing customer base there.

Great. Thank you, guys.

Tom Roderick, Stifel.

Good morning. Thanks for taking my question. First question I want to ask here was on the momentum of the Tier 1 deals. I know you get asked this quite often. But now we have seen yet other deal with a Tier 1 here with really outsized proportion, $30 billion in the US, and you have landed seven Tier 1 deals this year. As you get up and start doing these deals with banks like First Republic and this $30 billion bank, can you talk about some of the circumstances that open the door for you? And what sort of additional requirements you are facing as you get into these opportunities? What is it that is enabling you to win some of these even larger deals now?

Yes, Tom, thanks for the question. Clearly, there is a lot of momentum in the Tier 1s. We've signed 12 since the time we went public, and in the previous 10 years we signed 1. There's several circumstances. I think it's really important to point out that us going public and giving the transparency and having the balance sheet has been really helpful. It allows them to do business with us. Compliance has a seat at the table when they're trying to make these decisions.

From a requirements perspective, they have the same challenge that a community financial -- a smaller financial institution does, just from the standpoint of they have antiquated technology that doesn't talk to each other. It doesn't talk to each other, it doesn't look the same, it doesn't feel the same for the customers. We go in with the same solutions-selling approach, which is we can make your customer experience better, you can become more efficient as a bank because we consolidate platforms. And then because we have a single platform right at once, run it everywhere, we can deliver you technology faster. They're running into those problems that the customers don't have a good experience, they have a bunch of stuff that doesn't talk to each other. And then, the vendor that they work with -- vendors that they work with typically aren't innovating at the pace we are.

When we work through that process and you start to see the numbers are in our favor, meaning that when you have 5 million end users -- 6.3 million end users on our system like we ended the year with -- and they may have 100,000, 200,000, 300,000 -- it's not nearly as daunting for them because they say, okay there's a lot of people on this system.

The other thing is, is the investment we've made in infrastructure. For First Republic, for the $30 billion bank, those people are putting their technology in our data centers. The scale that we proven to be able to operate at, I mentioned that we had record uptime, that is really important. And we seem to do a better job than most at that. So, all of the things lend itself to this network effect that we talk about. I always want to point out that, that success in the Tier 1, the customer reference ability, is driving activity in the Tier 2, in the Tier 3. And it's also helping us with cross-selling.

That's great. Jennifer, a follow-on for you, just on the Tier 1s this quarter. Did either of those take bill pay? Just so we have some assumptions behind our gross margin modeling going forward?

I'm not sure specifically the ones this quarter, but of the seven that we signed in 2015, three of them did take bill pay on our paper.

Great, okay. Matt, last one, I guess this is for all of you guys. I guess this is a broken-record question as we watch the market go down every day. What are the inputs that you are looking at to decide for yourself how fast you want to keep the business going? How much you want to have your own foot on the pedal from a hiring and investment standpoint? Curious how you think about the uncertain macro, and how that dovetails into your thinking on investments versus cash flow positive and letting profitability run through.

Thanks for the question, Tom. I didn't realize that the market had been choppy. Thanks for letting me know. (Laughter). We have been so focused on the business. Listen, we have always articulated a story of 30% plus growth with an eye on profitability. We don't talk about it on a 50%. We have done that in the past. We think 30% plus, in that range. We came in at 38% this year is important, but we have always had an eye on profitability because our customers require it. Every customer we talk to says, when are you going to be profitable?

We have laid out our long-term targets. I would tell you that, for us, three straight quarters of operating cash flow positive, more than 1,000 basis points of gross margin improvement since the IPO. We are focused on it. Jennifer mentioned Q4, we look at having some positive EBITDA. We are growing, but we are focusing on scaling and profit at the same time. I am glad you asked the question because we are not changing anything about our business. That's the way we have run the business for a long time, and we're going to continue to do that. We look forward to more operating improvements as we move forward and executing on the business.

Great. Thank you, guys. Nice job.

Matt Hedberg, RBC Capital Markets.

Thanks for taking my questions. I wanted to ask on the T-1 wins here. I know you guys obviously don't guide to that. Clearly, I think you said 7 this year, 12 since when you went public. That's really, really fantastic. I'm wondering, Matt, can you comment on the strength of the pipeline as you enter the year? And I guess maybe as a follow-up to that, with all the success that you are having here, are you seeing the competitive environment take more notice of you guys? Maybe it has always been the same, but I'm curious, with all the success there.

There's no change in the competitive environment. We continue to do really well in the marketplace. We've been competing, not only at this Company but in our previous companies, for the last 17, 18 years in this environment. And the legacy, the big guys are still there and competing the way they do. We feel really good about our positioning against them.

From a pipeline perspective, I have as much confidence as I've ever had in the pipeline. And that's in the Tier 1, Tier 2, Tier 3, bank and credit union. And I'm also really excited about our cross-selling, our relationship Management Team this year. I got a chance to talk with them. They were all in Austin this week. I got the chance to talk to them. They are really excited about the product pipeline, about where customer sat is, about the infrastructure -- all those different things.

It's going to be -- we are looking for a great year in all of the categories. We've got the sales board built out. Great Management Team in the relationship Management Team, plus we are -- the operations of the business and the product and development team are -- have a really rich pipeline coming out of product. I have a lot of confidence in our sales forecast for 2016 and beyond.

That's great. I wanted to ask about your core market of Texas. I believe the penetration you talked about is 20% in that market. Can you talk about, with obviously the oil and gas struggles, can you talk about some of the dynamics of that market in particular? Are certain things able to offset other things so that, overall, even though oil and gas is weak obviously, that the banks are maybe still spending on this technology?

I think, as I mentioned before, this is not a discretionary spend. Our success in Texas begins to build on itself, in that other financial institutions with 20% of the banking market, other banks we have credibility, the referenceability is up. I would just mention that we signed a credit union here in Austin in the fourth quarter. So, credit unions benefit from those low gas prices. I don't want to go into all of the customers, but if you look at a lot of the customers in Texas, they've identified and broken out their oil and gas exposure. They are dealing with all of that. I think, Jennifer, why don't you share some data on our oil and gas exposure?

From a revenue perspective that's at risk, I would take tell you that, while the Texas banking revenue is growing for us -- it grew approximately 30% year over year in absolute dollars -- it's shrinking as a percentage of our total revenue. Q4 2015, the revenue from Texas banks was down to about 11.5%. And that's down from 13.5% in the same period last year. So, while we are continuing to grow in Texas, the diversity of our customer base and the expansion that we have seen, especially this year outside of Texas, has really helped that.

That's great. Very helpful, guys. Thanks again, and good numbers here.

Thanks, Matt. Have a good day.

Brian Peterson, Raymond James.

Thanks for taking the question. Matt, can you remind us on the implementation timelines for a lot of these Tier 1 wins, just in general? And, given the pipeline activity, and obviously the strong backlog, what's your level of visibility into the 2016 revenue outlook, maybe from what you have seen historically?

I will have Jennifer answer the visibility. But from a timeline perspective, we generally communicate 12 months is what a Tier 1 should take. The only exception we've had to that is First Republic is going to be a longer delivery cycle than that, because of the size and magnitude of the opportunity. It won't have a material impact on revenue in 2016. And with that, I'll let Jennifer talk about the comfort and the guide.

Our visibility continues to be strong. With our long-term contracts and our low revenue churn, at the beginning of the year -- based on what we have already got in the ground and what we know is going to be delivered, and we've proven that delivery execution in the eight quarters that we've been public -- we are well north of 90% of our revenue for this year in the ground.

Okay, got it. And just a clarification on the retention dynamic. I know you mentioned about half of that comes from organic user growth or users with existing customers. Is there any way to parse out how much of that comes from an M&A benefit from your existing customers acquiring other banks?

It's really difficult to tell because a lot of times during that M&A activity they will also promote the online banking as a part of that and bring on other users as well. It's really hard to segregate that.

Okay, great. Thank you.

Michael Huang, Needham & Company.

Good morning. Nice quarter, guys. Quick questions for you. Could you remind us, and I apologize if I should be able to nail this myself, but I wanted to make sure that everyone was aware of this. In terms of the 12 Tier 1s that you guys have signed since IPO, how many of these are still left to be deployed? And do you have a rough sense of what that could represent from a potential user account standpoint?

It's hard to tell from a user count standpoint because each of those are different. I would expect user counts, that you would continue to see 30% plus growth just like you're seeing the revenue top-line growth. And I would expect the seasonality to be similar as it's been the last couple of years, with the larger number of users being added during the first half of 2016. It always slows down in Q3 with the summer months and then Q4 because of the holidays and year-end system freezes at the financial institutions. Of the 12 Tier 1s that we have signed since being public, the 7 from this year obviously are still in the deployment pipeline, as well as the 2 that were signed in the fourth quarter of 2014, which we believe will roll into revenue here in the first half of 2016.

Great, okay. Matt, it was great to hear that Tier 1 was replacing five systems with Q2. I was wondering, is that pretty typical with what we have seen around some of these Tier 1s, or maybe some of the recent ones? Maybe if you look through the seven wins in 2015, how many systems on average were you typically replacing?

I think it's pretty typical beyond even Tier 1s. The Tier 2s, Tier 3s, you may get into some corporate banking functionality that the Tier 3s may not have. Generally, you are typically replacing four to six solutions and adding fraud analytics on it.

Awesome, okay. Last question, just around Social Money. Maybe help us understand, from the customer's standpoint, how important is that? And maybe if you could talk about some of the integration timelines around this. Thanks.

We did the deal at the end of December. And, obviously, we are really excited about the team and the technology. At this stage, all I will say is that acquiring new customers, whether it's millennials or anybody, and then acquiring new deposits, is important to banks and credit unions everywhere. This platform allows them to do it in a cost-effective manner. And there's a lot of logical connections we can make between deposit and then our front-end system to be able to see it. So, we will expand more on the Social Money acquisition.

And the timeline, we're working feverishly right now to get them integrated and make sure the team feels part of the culture. We are really excited about it, just like on the Centrix side. We did a really good job of getting them integrated. And we will continue to work on that. And give you more updates throughout the year.

Awesome. Thanks so much. Appreciate it.

Thanks for getting up this early, Mike.

Richard Davis, Canaccord.

It's DJ subbing in for Richard. Just as I think about the wins you've announced this year, particularly the Tier 1s, they were pretty dispersed geographically. So, are you guys to the point where you have the reference customers that you need in each regional market? And then, as you think about the competitive set, are there any geographic strongholds that make it harder or easier to compete in certain markets? Any color there would be helpful.

We have less than 3% of the banks and credit unions in the United States. So, we have a long ways to go to get to where we have the market share like we do in Texas, which is 20% of the bank space. But I feel like we have really good coverage out there. We are growing the sales organization. The Tier 1, Tier 2 had been in place for the last couple of years. And then the Tier 3, we have been building out and see a lot of momentum there. We're going to continue to invest in the sales organization. We are also, like I said earlier, we're focusing on 30% plus growth with an eye towards profitability. We will balance that. We've got a long ways to go. This is early innings for us. And we're going to continue to execute on knocking these deals down.

Okay. Thanks for the color.

Peter Heckmann, Avondale.

Good morning, everyone. I have a few questions. Jennifer, can you talk about, or can you confirm at the end of the year how many banks -- or how many total financial institutions you had live? And then, if possible, can you tell us how many total financial institutions you signed -- new financial institutions you signed in 2015?

We don't disclose the total number of customers that we signed in any given year, but it's been consistent with what we signed the last couple of years. And then, the number of installed or live customers at the end of 2015 was 369.

369, okay. In terms of -- we know that it doesn't really matter how financial institutions, it's more about active users. Is there a way that you could quantify the contracted backlog of active users across all your signed-but-no-yet-live contracted financial institutions?

We don't guide to a specific forward-looking number on that because it's so hard to tell which banks are going to go live in which time frames. And there are all very different in size. But, as I mentioned earlier, I think you can continue to expect 30% plus year-over-year growth in registered users driving that 30% plus growth on the top line. And the seasonality will be very similar to the last two years, with the bigger portion of those being added in the first half of the year.

Okay. Let me just go back and check a number. Did you say 369 live banks?

Yes.

Is that compared to 361 in 2014?

Yes, that's correct.

Okay. So you only brought eight banks live in the year?

No, we brought more banks live during the year. That's offset by the number of banks that churn. Remember, we lose banks through churn. And it's typically the smaller banks that have less revenue, as well as those that we lose through M&A. So, even though we churned a fairly sizable number of small banks, the revenue churn was only 3.5% of our revenue base.

Got it, got it. Okay, that's helpful. Last question, I'll get back in the queue. Just so in terms of we can get our hands around, what does a Tier 1 mean? Is there a way generally you could say, on average, and there may be a wide standard deviation, but the average Tier 1 might have 200,000 active users? Is that a fair number? I know that some that you've talked about have had 600,000 users. But is there an average so we can just think about what these Tier 1s mean to Q2?

That's a question that I wish I could answer directly. There's such a variance, especially when you look at First Republic, a private well financial institution versus the $8 billion bank we signed in the Southeast. And then you also have customers that are just buying corporate banking. So they may just have a very small number of users that come on but they are -- the average user dollar amount significant higher. With a platform as broad as ours is, and our net being cast over retail, small business, corporate banking, we just don't have a number that I would be comfortable giving you to look at. I think the stat that's really important for us is, we don't have a single customer that represents more than 3% of our revenue. And our top 10 are -- Jennifer, what was it down to?

The next 10 after the top this year decreased from 15% of total revenues in 2014 down to 13% of total revenue. So the top 11 are just slightly over 15% of total revenue now.

You would couple that with long-term contracts and low churn. We love the business. It gives us tremendous amount of visibility into the revenue. We're really comfortable with our guides. Pete, it's hard to get an answer on the -- what an average Tier 1 looks like.

Got it. Last question, I promise. But I think you already answered this. But in terms of the conversions in the backlog, would you call out any quarter in 2016 as being kind of a key quarter where we might see a relatively larger number of user adds? Just so I don't get ahead of myself in terms of quarter to quarter.

I would say that since we have customers on this call and employees as well, every single quarter, every single go-live matters because that's their own heart transplant that we're doing. It's a matter of, we try to look at every single go-live individually and make sure that they have a great experience. From a revenue perspective, Jennifer had mentioned that the front half is usually loaded up with more end users. So we want to make sure we execute and bring those in on time, if not a little ahead of schedule.

Okay. Good stuff. I appreciate it.

(Operator Instructions)

Jeff Houston, Northland Securities.

Thanks for taking my questions. Just curious if you could talk a bit about how you think about market acceptance between your commercial and retail functionality. Is it the case that retail is an easier sell then commercial? And then, along those same lines, are the Tier 1 customers that you added in 2015, are they using Q2 for both retail and commercial, or is there a mix between the two?

Jeff, thanks for the question. I don't -- they all have their own challenges around both of them. I think that the people that work on the retail product would passionately argue how difficult it is to make things really easy and simple to use. And then the commercial group would argue about the deep workflows that you have to build, the integration, and the importance of the dollar amounts that go through it. I would tell you that they are both really difficult to do. And I am really proud of what our team has done around those platforms.

And then, like to Pete's question, the Tier 1s have consisted of really deep corporate functionality, but they've also had -- we've had some credit unions that have focused just on retail functionality. So, there is no way to genericize the decisions they've made. But the thing about it that's important to understand is that when we go to the customer, we bring them a robust retail solution that has design components that works consistently across all the devices. And then we have a robust commercial system that provides them with the ability to do small business to mid-size to larger corporate functionalities, and we continue to enhance that offering.

And then we have a have a security and fraud product that ties to both of those. So the single platform -- when you think about a bank buying the platform, they may buy just retail, but then they always have the ability to go move to commercial. Or they can buy commercial and move to retail, which is kind of the cross-sell opportunity for us as well.

Great. Then following up on that, how should we think about R&D and M&A spend and efforts split between retail and commercial in 2016? Should it be roughly split evenly between the two?

We don't necessarily break it out as retail spend versus commercial spend. Keep in mind, since we have a single platform, we get a lot of leverage out of design work that goes into a retail -- a look and feel that we can translate over to commercial. We're investing heavily into R&D. The product pipeline is -- we are really excited about it. I don't to front run it too much. But, in general, the investment's going to go into all those things -- mobile, corporate banking, security, customer acquisition things. And then we also love all the data that's flowing through here and helping our customers understand what their customers are doing so they can provide great support and cross sell products to them.

And then, from an M&A perspective, we've been very fortunate to get a company like Centrix and Social Money to come aboard. You should look for more deals like that, nothing transformational. We'll try to get something that can help our gross margins, help our growth or, if we're fortunate enough, we may be able to get something that does both of them like we've done with the last two. But, follow in the same pattern we've had. We did that follow-on in September. We have $110 million plus on the balance sheet. We talked about positive EBITDA. We feel really good about 2016 and beyond and the position we're in.

Great. Thank you.

There are no further questions at this time. Thank you, ladies and gentlemen, for your participation today. This concludes today's conference call. You may now disconnect.