Q2 Holdings Inc (QTWO) 2016 Q1 法說會逐字稿

Good morning. My name is Keith and I will be your conference operator today. At this time, I'd like to welcome everyone to the Q2 Holdings first-quarter results conference call.

(Operator Instructions)

Bob Gujavarty, Vice President of Investor Relations, please go ahead, sir.

Welcome to Q2 Holdings earnings call for the first quarter ended March 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 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 morning. 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 Needham Emerging Growth Conference in New York, the JPMorgan TMT Conference in Boston, this Stifel [TMT] Conference in San Francisco, and the Craig-Hallum Institutional Investor Conference in Minneapolis.

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 rates to differ from the results implied by these or other forward-looking statements.

Also, these statements are based solely on 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 and the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward-looking statements.

During this call, we will be referring to both GAAP and non-GAAP financial measures. We believe that non-GAAP measures are more representative to how we internally measure the business. They're reconciled to the GAAP in the tables attached 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 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 dependant on our future stock price. With that, thank you for joining us, and I'll turn the call over to Matt Flake.

Thanks, Bob. I'm pleased to announce a strong start to 2016 with another great quarter of performance and execution. In the first quarter, we generated total revenue of $33.8 million, up 40% year-over-year. We built on our track record of operational execution with another quarter of strong end user growth, adding approximately 500,000 users, and exiting the quarter with approximately 6.8 million registered end users, representing 31% year-over-year growth, and up 7% sequentially.

Once again, the users we added were a result of organic growth in our existing base and the continued installation of new customers. I'm particularly proud of the successful implementation of Citizens Equity First Credit Union, or CEFCU, a top 25 credit union.

CEFCU signed in the second quarter of 2015, and we were able to take them live in less than nine months, further evidencing our ability to implement customers of this magnitude on time and on budget. The customer is pleased with our implementation effort and happy with the product. Adding new customers is important to the business, but cross-selling to our existing customers is also a key driver.

On that note, the first quarter was a record-setting cross sale quarter for us, as customers continued to adopt new products and extend their contract terms. This record sales performance is an encouraging sign that our customers continue to believe in our strategic direction and our ability to deliver innovation.

Moving on from cross sales, investors are often curious about the merger and acquisition activity in our space. While we've been the recipient of more end users than we've lost through acquisitions, I'd like to share a story about one of our customers who was acquired by a larger financial institution in 2015, as it provides another example of how our platform continues to create value in our marketplace.

This customer, a $4 billion bank, was acquired by another larger institution using a separate core and digital banking system. The vast majority of the time in this situation, the larger institution typically collapses the acquired institution's technology into their existing systems.

In this case, we were able to demonstrate the value of our platform and displace the front-end solution of the larger institution. This was a big win for Q2 and I'm proud of the team and all their efforts in telling our story and bringing users live on the platform.

To bookend the delivery, execution, and cross sale commentary for the quarter, I'd also like to mention that we had a good start to the year in the credit union market, in what is seasonally a slow quarter, signing more credit unions than we've ever signed in a first quarter. I want to thank our customers for continuing to provide great references and NAFCU for their partnership and helping us maintain our momentum in the credit union space.

I'd now like to give a few important highlights and observations from CONNECT, our annual customer conference, which concluded last week. As many of you know, CONNECT is a great opportunity to get face-to-face with our customer base in order to better understand how we can meet their needs today and into the future.

We had record attendance across the board at this year's CONNECT, with over 500 attendees representing customers, prospects, and partners. Clearly, CONNECT has become a premier digital banking event in our industry. At CONNECT, we announced several new product offerings and there was particular excitement around two specific products that represent significant expansions of the platform's analytics and corporate banking capabilities.

The first is our analytics-driven marketing platform called Q2 Smart. As branch traffic declines, banks and credit unions are increasingly challenged to understand the needs of their account holder base, and consequently, how to establish lifelong relationships and cross-sell their products and services.

Q2 Smart is designed to help customers address this challenge by providing them with a recommendation engine, a marketing automation tool, and a robust reporting suite, all built natively on the Q2 platform and powered by the wealth of data generated by 6.8 million users. Building on the behavioral analytics model of our risk and fraud solution, Q2 Smart will help our customers better understand their account holders, more effectively market their products, and ultimately help FIs drive new revenue.

We've developed this product in close partnership with many of our customers. I'm excited to mention that financial institutions, large and small, will be taking Q2 Smart to market with us. I'll continue to provide updates on our progress as this product enters general availability.

During the conference, we also announced the second major iteration of our treasury solution called Corporate Banking. As modern technology and user expectations continue to transform the way businesses are run, banking technology for those businesses must evolve as well. Our Corporate Banking offering harnesses the modern architecture of the Q2 platform, and its delivery represents a pace of innovation that legacy competitors will find hard to match.

Developed with native touchscreen design, our Corporate Banking suite is completely functional across thousands of modern devices and browsers, a major differentiator for Q2, and a powerful weapon for our customers to compete for valuable commercial accounts. As with Q2 Smart, we are seeing strong early traction with this product, with several customers already in flight and more to come.

In summary, the Organization continued to execute on multiple fronts. We added almost 500,000 registered users to the Q2 platform, cross-sold products at a record pace, and had a solid start to the year in the credit union market. I'm energized by this strong start to the year and will look to continue building on this momentum through 2016 and beyond. With that, I'll hand the call over to Jennifer.

Thanks, Matt. We are pleased to have delivered first-quarter revenues that exceeded our guidance, combined with another quarter of solid growth margin improvement. Let me start by reviewing our results for the first quarter before finishing with the updated guidance for the second quarter and full year 2016.

Total revenue for the first quarter was $33.8 million, an increase of 40% year-over-year, and up 11% from the previous quarter. Our increased revenue in the first quarter was the result of strong growth in subscription revenue, combined with consistent growth and services revenue.

Subscription revenue benefited from both organic user growth within existing customers and new customer go-live in the quarter, while services revenue continues to benefit as we take customers live and begin to recognize the implementation fees from those customers. Transaction-based revenue again increased in actual dollars, while declining to 18% of total revenue, down from 19% of total revenue in the previous quarter, and 21% of total revenue in the year-ago period.

As we turn to gross margin and operating expenses, let me remind you that unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis. Gross margin was 50.8%, up from 45.8% in the first quarter of 2015, and up from 48.4% in the previous quarter. Both the year-over-year and sequential improvement was attributable to our continued growth in subscription revenue and improvements in services margin.

Lower costs as a result of the Centrix acquisition also contributed to the year-over-year gross margin improvement. I expect gross margin to show modest improvement of the remainder of the year as compared to the previous expectations of improvements weighted to the second half of 2016.

As expected, operating expenses increased significantly, as we continued to invest in our business. We added headcount across the Organization and experienced a seasonal increase in payroll taxes associated with annual bonuses and year-end commissions. Total operating expenses were $21.3 million, up 49% from one year ago and up 17% from the previous quarter.

Sales and marketing expenses were $7.8 million, up 32% year-over-year and 17% sequentially. Both the year-over-year and sequential increases were primarily due to investments in headcount. Given our customer conference, which was held last week, I expect sales and marketing expenses to grow significantly in absolute dollars in the second quarter before gaining leverage in the back half of 2016.

Research and development spending was $7.3 million, up 82% year-over-year and up 19% from the previous quarter. The increased R&D spending year-over-year and sequentially reflects increased headcount to support an accelerated product road map. As Matt mentioned earlier, we announced several new products at the customer conference, which was a result of the investments made over the last 12 months.

The acquisition of Social Money also contributed to the sequential increase, as we added product and development personnel in December, and they contributed their first full quarter of expense in the first quarter. I expect research and development spending to continue to increase in absolute dollars, but as these products become generally available later in the year and move into maintenance mode, I expect R&D will begin to decline as a percentage of revenue in the second half of the year.

General and administrative expenses were $6.3 million, up 42% from a year ago and 14% from the prior quarter. The sequential increase was driven by an increase in payroll taxes associated with annual bonus payments and increased spending on professional services. I expect general and administrative spending to increase in absolute dollars but to decline as a percentage of revenue as we approach the second half of 2016.

Adjusted EBITDA was negative $2.4 million compared to negative $2.1 million a year ago and negative $1.9 million in the fourth quarter of 2015. The decline was largely a result of increased investments in research and development, which grew faster than revenue year-over-year and sequentially, and the higher payroll taxes associated with annual bonus and commissions payments.

We ended the quarter with cash, cash equivalents, and investments of $105 million, down from $110.6 million in the previous quarter. Cash flow from operations for the first quarter was approximately $200,000, and the Company incurred net capital expenditures of $3.6 million, and made payments of $2.2 million on financing obligations during the quarter.

Capital expenditures were elevated in the first quarter as we continued the build-out of our expanded headquarter facilities, as well as a new facility in Lincoln, Nebraska. I expect to see a decline in the second half of 2016, and over the long-term, capital spending is likely to run at approximately 6% of revenue.

Our deferred revenue balance on March 31 was $56.3 million, up from $52.2 million at the end of the year. The increase in deferred revenue reflects customer deposits collected during the quarter, partially offset by the revenue recognized during the quarter for services engagement.

Let me wrap up by sharing our second-quarter and full-year 2016 guidance. We forecast second-quarter revenue in the range of $35.3 million to $35.7 million, and full-year revenue in the range of $146 million to $148.4 million, representing 34% to 36% year-over-year growth. We forecast second-quarter adjusted EBITDA of negative $2.5 million to negative $2.9 million, and negative $3.2 million to negative $4.2 million for the full year of 2016.

The timing of our annual customer conference is driving the sequential decline in adjusted EBITDA in the second quarter, but I expect to see solid improvements in the second half of 2016. We are still on track to deliver positive adjusted EBITDA in the fourth quarter of this year.

In summary, the first quarter was a solid start to the year and we are on track to grow revenue 30% plus year-over-year, improve both growth and operating margin, and deliver positive adjusted EBITDA in the fourth quarter of 2016. Now let me turn the call back to Matt for his closing remarks.

Thanks, Jennifer. After a successful first quarter and wrapping up our client conference a week ago, I'm as energized as ever about the opportunity we have here. There is plenty of work ahead of us, but the consistent message that came out of this year's event was that Q2 is well-positioned for continued success as a Company. We will maintain our focus on delivering innovation, building strong relationships with our customers, and achieving our long-term financial targets.

With that, I'll hand the call over to the operator for questions.

(Operator Instructions)

Sterling Auty, JPMorgan.

Yes, thanks. Hi, guys.

Hey, Sterling.

Good morning.

Wanted to start with the traction that you saw with sales into credit unions in the quarter. Was there something, I didn't quite catch in your prepared remarks, was there something special in terms of either a marketing program or seasonality or sales incentives that particularly were targeting credit unions for the quarter or it just happen to be this is how it fell out?

No Sterling, it's been -- we've always told the story that we think we're in about the third inning if it was a baseball game on the bank side of things, and it's really early innings on the credit union side because we got into that market a little later. It's the momentum that we've built, both from the sales organization, as well as things like our partnership with NAFCU, the National Association of Federal Credit Unions.

And then the sales organization going out and telling the story and talking about how our product can make the members' experience better, make the credit union more efficient, and then we can get you technology faster. So it's just the sales team executing plus the technology and telling the story and then also our customers provide great references for us and have been great partners.

Okay. Then you talked about the success in cross-sell. Can you give us some sense of what are you seeing as the most popular, either modules or items that you are seeing uptake with in terms of that cross-sell?

Yes, thanks, Sterling. It's hard when you talk about one that's in particular is popular because we've talked about, we've got about 37 product SKUs that are out there and our average adoption is about 10. So whether it's the fact that we are able to resell Centrix in an integrated environment these days that is better than it was or whether it is the Corporate Banking solution or all the different products.

I would say, in general, the customers are looking for things that are mobile, things that help with business banking, things that help with security or compliance. Those are the areas where people are spending, all those different categories. That's why it's hard to pin down one particular product, but those categories are the ones that, when we walk into a bank or a credit union, they want to talk about those things, and therefore, we've got a really broad product suite to solve and address a lot of those problems.

Make sense. Thank you.

Thank you.

Tom Roderick, Stifel.

Hey, guys. Good morning. Let me take the first one in talking about the implementations during the quarter. Really you've been doing a nice job on some of your bigger implementations over the last several quarters. If we look at that 6.8 million sub count, I'm really interested to get a sense for, of all the Tier 1s you signed last year, can you give us a sense for what percentage of that backlog of subs has already been implemented versus how much you have to go?

And maybe you don't need to necessarily reference Tier 1s, but the whole list of bigger deals you signed last year would be great, but also how are you doing on implementation capacity? Do you feel like you really need to staff that more or are you adequately staffed for that? Thanks.

Sure, Tom. As it relates to the 12 Tier 1s that were signed the last couple of years, we obviously took three of those live last year. Matt mentioned in his prepared remarks, we took CEFCU live in Q1, so four of those 12 are live, with the other eight that are remaining in backlog tracking right on track to our expectations. So you will see the majority of those go live in the second half of this year.

As far as it relates to capacity, we have the capacity on board. As I've mentioned before, sales is forecasting not only the dollars of bookings, but also the units and the types of bookings, and so we are joined at the hip with the implementation's team on our demand capacity model and we're staffed will there. You will continue to see investment as we continue to have a strong pipeline, but we maintain hiring in front of that curve so that we don't increase backlog, so our capacity there is looking really good.

Jennifer, can you just remind us as to how the go-lives impact your revenue recognition and how it impacts what you guys end up taking on the balance sheet in the form of deferreds? Do you -- once you go live, are you able to then take revenue on the minimum number of commits that they have signed up for and then reflect that through the deferred? Or maybe just take us through the cadence of how that impacts both revenues and deferred?

The deferred is primarily the customer deposits that we collect at the time of signing and that is the majority of the implementation fees. Sometimes, depending on the size of the customer, we will collect the first three to six months of the monthly subscription fees, but it is primarily the services. So at go-live, then, we begin recognizing that services revenue out of deferred and it's recognized over the term of the contract, and I would remind you that our average contract term for new deals is 66 months, so we are recognizing that 1/66 per month over that contract term.

Then the subscription fees, yes, to the extent that we collected three to six months will come out during the first three to six months, but after that, the majority of the customers are billed and collected monthly with a handful of quarter or annually in advance. Those are the contracted minimums from the start until they exceed the number of minimum users that were in their contract and then they start getting the excess-usage charges.

Great, okay, good. Matt, maybe turning into the notion of cross-sell. You have always talked about not only multiple products but multiple sides of the business, particularly to your bigger customers on the Tier 1 side. So if you can sell consumer and then cross-sell to commercial or vice versa.

Can you talk a little bit more about the role of treasury? You mentioned you've rolled another product or another module on that, that is receiving solid traction, but would love to hear broadly how your bigger customers are thinking about treasury and the ability to layer commercial on top of consumer?

Yes, Tom. One of the things that has been interesting as we have started on this journey of expanding our business banking offerings into treasury and corporate is that those decisions in larger financial institutions are usually made by separate teams. So one of the things that we've seen is that when we execute on, whether it's retail or business nanking on either side, provide great support, get the system up and running, they see the efficiency of the technology.

Some of the larger financial institutions then, we're able to cross the other side of the institution into the corporate side or the retail site to cross-sell our products. So we think the Tier 1 space is getting bigger for us as we begin to expand our products and our offerings.

The things that they want are more functionality. It's a living, breathing thing that we are going to build on for years to come, but the opportunity, not only in Tier 1s but in Tier 2s and Tier 3s to be able to offer expanded corporate banking functionality, some of the retail stuff that we can do, is really differentiating us and we do it at a pace that is very difficult for the competition to keep up with.

Got it. That's a for me. Thanks, guys. I will jump back in the queue.

Thanks, Tom. Have a good week.

Matt Hedberg, RBC Capital Markets.

Yes. Hi it's Dan Bergstrom for Matt Hedberg. Thanks for taking my questions. Jennifer, you talked about this a bit, or actually quite a bit, but could you drill down into gross margins more? Gross margins, very impressive, crossed the 50% mark.

They've improved quarter over quarter for five quarters now. What's driving this? What are the gains you are seeing and then how should we think about this going forward? Thanks?

There are several factors driving it and it's really all the levers that we've said we've had in the last couple of years, as we have been telling the story. You're starting to see some economies of scale and some leverage out of the data-center investments that we made in late 2013, early 2014. You're seeing the systems and processes that the implementations team have put into place to become more productive to continue to execute and deliver on those implementations.

You are now really starting to see some of the improvement in the services margin. If you remember, when we were going public, we talked about the fact that we had implemented services price increases. Then if you think about how long it takes to really start delivering that higher-priced services contracts to the top line, you get the 9 to 12 months sales cycle, and then you've got a six to nine month install time.

So now you're really starting to see some traction in the fact that all of the deals that we are implementing now and we head to go-live and begin to start recognizing the revenue, it's those higher-priced services contracts. The services margin has improved by more than 50% year over year, still negative from a GAAP perspective, but a huge improvement.

Yes, of course. Then we are anniversarying the implementation of two Tier 1 customers from last June, the last June quarter at this point, American Airlines and Trustmark. Could you talk about the progress of these two customers over the past year, additional adoption, user trends, anything like that? Thanks.

Yes, thank you. I will tell you that both of them attended our client conference last week, both of them are happy, and both of them are expanding on the platform. I don't know that I can get into the details of each one of their adoption or growth because I don't know whether they are comfortable with me sharing that information.

But I will tell you that they were happy, they are expanding on the platform, they were referenceable, they met with prospects that were there, they met with our product teams to give ideas and direction on the direction they think we should go. They are happy customers and we are cross-selling them products and helping them with adoption and they are helping us with strategic direction, so things are good with both of those clients.

Understood, thanks.

Thanks, Dan.

Terry Tillman, Raymond James.

Hey, good morning. Hi, Matt, Jennifer, Bob.

Good morning, Terry.

Good morning, Terry.

Nice job on the quarter. My first question though relates to, Matt, you emphasized the strength in the credit union side in the quarter and now the benefit from that trade association maybe helping influence business. But what about on the community bank side, in terms of new bookings in the first quarter, whether it is your bread-and-butter Tier 2, Tier 3, or Tier 1? What could you say about what you saw in terms of strength and near-term pipeline in that side of your house?

Yes, Terry. Appreciate the question. We only have so much time on these calls to go through so much good news, but the bank side of the business, Tier 2, Tier 3, we expanded the Tier 3 sales organization in 2015, building our farm system up. Those guys are out there generating a lot of opportunities, telling the story really well. I feel really good about that area.

Tier 2, continue to see a lot of momentum there. Keep in mind, we signed two Tier 1 banks in the fourth quarter of 2015, a $30 billion bank and an $8 billion bank. All of those are progressing and moving along. We just decided to highlight the credit union and the cross sale because they had really strong quarters, but I'm as confident as ever in the Tier 1, Tier 2, and Tier 3 bank pipeline that we've had, both on a quarterly, annual, and a three-year basis.

Okay. In terms of -- you highlighted your all's increasing presence in digital marketing, given all the data that is coming out of your platform. Maybe you could give us a sense of how the Smart, the marketing automation product, compares in terms of corporate banking or TMS in terms of, if one of your existing customers is to uptake both of those products, how do they compare from just a monthly recurring revenue standpoint or just deal size? Just something to understand what the benefit of each of those could be if you cross-sell into the installed base?

From a revenue perspective, I would say that it's early for us. We are not even in GA at this point, so what we are trying to do is to work with our customers, large and small, to make sure we understand the value that they are going to see out of this and what the economics are going to work out to. We are beginning to help our customers generate revenue, we are beginning to help them drive a better customer experience.

So I will update you along the way, but it is going to add value to our deals, whether it is winning net new deals, cross-selling products, adding new end-users to the system, those are the three legs of the stool for the business: new wins, organic growth from end-users, and then cross-selling products. But rest assured, it will be recurring revenue, it will be accretive to the existing customer base, and it will help us extend contracts.

Okay. My last question relates to -- you just talked about, Matt, in terms of one of the meaningful investments in 2015 was the Tier 3, building out more of that sales team, where you it called it the farm system. If we look at 2016, and Jennifer talked about expected material increases in sales and marketing headcount, of your different sales teams, your hunters, your farmers, et cetera, and across community banks and then credit unions, is there any one area that really stands out for investment in 2016 or is it just incremental investments across all? That's it for my questions, Thanks.

Thanks, Terry. Just to be clear, the increase in expense for sales and marketing was related to the client conference, I believe. At this stage, we've built the sales organization out and we are going to continue to invest in them. We have added -- we're investing quite a bit in marketing in this Company.

We've grown to the size we are without putting a lot of investment into marketing and we've added Lorrie Schultz, as we referenced a couple quarters ago, to invest in our branding and our messaging. So you're going to see more and more in that area, but the sales organization will continue to grow from a headcount perspective, but the expense will be not what it was the last couple of years. Jennifer, do you want to add anything to that?

No. That's what I would add. I would say that, while we're continuing to increase the headcount, we are building up that farm system and so the economics of the hires that we are making now are a lot different than what they were in 2014 and early 2015. I do think you will begin to see more leverage once we get past the expense of the client conference in the second quarter.

Thanks, Terry.

Richard Davis, Canaccord Genuity.

Thanks for letting me on the call. If you called out registered users, but we don't really have that revenue breakout, so can you help us think about this? Two specifics would be, one, in as much as registered user growth is somewhat organic to your customers, how do you think about economically accelerating this adoption pace?

Then second, should we think about registered users as incremental? Or, to borrow a term from retail, is this growth -- should we think about it as same-store sales for a baseline subscription fee paid by the bank customers? Thank you.

The first part of your question about organic growth, yes, part of it is organic growth, but it's also the growth from the new users that are going live during the quarter. There is a good mix of both in that registered users growth number. How we think about it go forward it's really a leading indicator of the future revenue growth because whether it be that go-lives and the minimum is coming on or the excess users, it is a driver to revenue.

We have a group within the marketing organization that's actually focused on end-user adoption and marketing that help banks and credit unions come up with campaigns that they can run internally in order to drive that user adoption. Matt has said in the past, Bank of America and others have been really good at driving their users to the digital channel to decrease their cost, but that's not been in the mindset of the regional community financial institutions.

We are working with them to learn things like that, too. When somebody calls in and asks for a copy of their statement, say, yes, we can mail you one, but that's going to cost you $5, or did you know you can sign up for online banking and get it there for free? We're constantly working through those kind of things with our customers to drive end-user adoption, and our marketing team is there to help them with those campaigns. And then I'm sorry, the second part of your question, could you repeat that?

Basically, should we think of it as same-store sales? Because the question I get from investors is hey, great, that, that side of the business is growing, but how much should we be -- how happy should we be? Should we be extremely happy? Basically, is it same-store sales to a baseline subscription or is it baked into expectations? When you guys come out and say, hey, we had a good registered user quarter is that incremental to our numbers, is it in line? Do you see how this just helps us get some transparency there? Thanks.

It's typically baked into our expectations. We are forecasting, not only our revenue, but our registered user growth. The things where you get a little bit of upside typically don't carry forward. It benefits the current quarter if we get a customer live two, four, even six weeks earlier than we thought because, remember, user growth is not linear, it stair-stepped as we bring those new customers on.

We've got a good handle on our historical organic growth rates and we bake that into our forecasts. So really the only play that you have there is maybe bringing customer live a bit earlier. So they came on in March versus what we thought was April, but we are ready had them in the April forecast, go forward. So I wouldn't consider it incremental to our numbers or our guidance.

Great, that's helpful. Thanks.

(Operator Instructions)

Jeff Houston, Northland.

Hey, guys. Thanks for taking my questions. Looking at the new corporate banking treasury product, could you elaborate a bit on what the new functionality that you are bringing to market is with that product?

Yes, Jeff. In general, what we're offering is a broadened payment platforms so they can do, whether it's international payments, or there are different types of ACHs that are out there, we broaden the information reporting. So if you think about going after larger companies, they have more data, more information. You have to be able to consolidate that in the way that allows them to do cash planning, cash forecasting, and general cash management services.

The last piece is a new and modern entitlements engine that allows larger companies with more people in their finance and accounting departments to login, and also to limit what they can and can't do with the application. Without putting everybody to sleep on the call, those would be the three headlines I would say that we continue to invest in and enhance upon in the corporate product, as well as touch-enabled mobile, tablet, and our behavioral analytics platform that ties into all this.

Got it. Great. Then the Q2 Smart's marketing module, that seems really innovative, as well. Is it an example of that functionality, perhaps a bank that is trying to target ideal customers for a new products such as auto loan? Or can you provide maybe a couple of examples of how that banks are really going to use the product?

Yes. We think it is game changing for us. We talk about it being recommendation engine, marketing automation, as well as the reporting that goes with it. But if you think about the premise of our story, it is that people are no longer going to the branch. That's how banks and credit unions got to know people.

So all we are doing is taking the data analytics that we have, the behavioral analytics, marrying it to the transactions and helping the financial institution understand their customer better so they can cross-sell them products. Simple examples of that could be looking at somebody's cash flow every month and giving them skip-a-payment capabilities because they just got through paying their kid's college tuition, rather than doing it just in December because that is the holidays time of year.

That's an experience than a member or a customer will remember forever. Looking at where somebody receives their payments from within their digital banking system and then using geolocation as a potential to say this person is operating a restaurant because they are receiving payments from Square and they go to an area where there are food trucks, so let's go offer them a business line-of-credit or something along those lines.

Really taking the power of a single platform, which takes all of the behaviors that occur on all of the devices, and then marrying that to transactions and helping our banks understand, and credit unions, understand their customers better so that they can cross-sell them products, provide them better service, and help generate revenue that way.

That's really what we are trying to do with this Q2 Smart platform and we have worked tirelessly over the last couple of years to get it done. We've worked with the team that built our fraud analytics product, which does the same behavioral learning based on behaviors and transactions but marries that to is this a secure transaction or not. We are able to stop that real-time.

So we are building on a product that we have already deployed to the market and have won significant market share because of it. So it's a really exciting opportunity for us. As I said, it's very early, so we will continue to update everybody on the progress of it but the customers left the conference really energized about it and excited about the direction.

Great. Then a last question for Jennifer. Looking at sales and marketing expense, the second quarter, how much is the user conference increasing that for the second quarter?

The user conference is a high six-figure number.

Okay. All right. Thank you.

Thanks, Jeff. Appreciate it.

We have no further questions at this time. I'll turn the call back over to the presenters.

Thank you all for joining the call today. We truly appreciate your interest in Q2 and we look forward to seeing you out on the road over the next couple weeks. Have a great week.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.