Q2 Holdings Inc (QTWO) 2016 Q3 法說會逐字稿

Good morning. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Q2 Holdings Third Quarter 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, VP of Investor Relations. You may begin your conference.

Welcome to Q2 Holdings' conference call for the third quarter ended September 30th, 2016. I'm Bob Gujavarty, Vice President of Investor Relations, and with me today on the call are Matt Flake, our 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 yesterday afternoon. If you have not, it is available on the Investor Services section of our website.

Let me also highlight our participation in several investor events this quarter. We'll be attending the RBC Capital Markets TMT Conference in New York, the Stifel Midwest one-on-one conference in Chicago, and the Needham one-on-one conference in San Francisco.

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 the actual results to differ from the results implied by these or other forward-looking statements. Also, these statements are based fully 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'll be referring to both GAAP and non-GAAP financial measures. We believe the non-GAAP measures are more representative of how we internally measure the business, and they're reconciled to GAAP in the tables attached to our press release, which is available on our Investor Services section of our website. The non-revenue financial measures we'll discuss today are non-GAAP, unless we state the measure of the 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. Since we expect our future stock-based compensation expense to have a significant impact on our future GAAP financial results, a reconciliation is not available on a forward-looking basis without unreasonable efforts.

With that, thank you for joining us, and I'll turn the call over to Matt Flake.

Thanks, Bob, and thanks to all of you for joining us. On today's call, I'm going to share some business highlights from the third quarter before handing it over to Jennifer to take you through our financial results in more detail.

We continued our strong revenue performance in the third quarter, generating total revenue of $38.3 million, up 6% sequentially, and 37% year-over-year. We also added approximately 200,000 users during the quarter, bringing us to 7.8 million users at quarter-end. The end user additions from the quarter represent 30% growth year-over-year.

During the quarter, we completed implementation projects for multiple financial institutions, which contributed to our end user growth. One highlight of the quarter was the successful implementation of our Corporate Banking platform at a leading tier 1 bank in the Western United States. This bank, with approximately $20 billion in assets, represents the first tier 1 bank to go live on our new Corporate Banking platform. To date, our Corporate platform has received positive accolades from many in the marketplace, and taking Corporate live with a net new customer of this magnitude is a huge win for our product development and delivery and delivery teams. I want to congratulate them on this flagship win for the Corporate product, and thank the bank for their partnership in making this project a success. I would look to point out that while corporate go-lives in general do not bring as many registered users to the platform as retail go-lives, they typically have higher average revenue per user and gross margins.

Another highlight we announced in the quarter was the implementation of ESL Federal Credit Union, a top-25 credit union. Digital banking conversions have traditionally represented a challenge in our market. They are large, enterprise-level projects that directly impact the financial institution's relationship with its account holders. The ESL implementation was a complex project for a variety of reasons, and I'm proud of the partnership and hard work that went into this on both sides. And roughly a year after signing the credit union, we were able to complete a full replacement of the credit union's existing internet-based business banking systems. The institution is extremely pleased with the success of the project and is already leveraging our mobile business solution as a competitive advantage in its market. These projects take a lot of work and a lot of energy, and I want to thank our clients for their partnership in these implementations. Continuing to execute on implementations will be critical, especially as we bring some of our large tier 1 customers live on the platform going forward.

On top of our operational execution during the quarter, we saw encouraging sales activity in both signing net new customers and extending relationships with existing customers. Three months ago, I mentioned a slow-down in decision making, specifically among banks. At the time, I expected to see some acceleration in the back half of the year, and sitting her today, I feel good about it playing out to my expectations. We saw a modest pick-up in activity in the third quarter, and closing deals in the fourth quarter will remain key to reaching our goals. One of the banks we signed in the quarter was a $3 billion bank holding company in the Midwestern United States. This win was a take-away from one of the core processors, an area where our focus on a modern, intuitive user experience continues to win us new business.

On the credit union side, we added multiple new customers, including two billion-dollar-plus financial institutions, one in the Southeastern United States, the other in the Midwest. An interesting note from these wins is that both institutions took our business offerings, which I believe represents an expanding opportunity we see with credit unions, as they continue to shift their investments towards acquiring valuable business accounts.

I'm encouraged by the progress we were able to make on the net new side during the quarter, in spite of the slower decision-making climate affecting financial institutions. That said, we will maintain our focus on executing on our pipeline in the fourth quarter to close out the year. As I've always said, there are three fundamental elements to growing our revenue: Net new customer wins, organic user growth, and cross sales to our existing customers, and I'm encouraged by the trends in all three areas.

Our long-term sales success is dependent on a robust new product pipeline, and I'd like to provide an update on a product we announced earlier this year, Q2 Smart, our new behavioral analytics platform, which includes a recommendation engine and a marketing automation tool. As we gear up to take this product into general availability, I wanted to shed some light on the volume of data that passes through our platform and ultimately powers the behavioral analytics at the heart of products look Q2 Smart.

On average, our users are logging into the Q2 platform more than 150 times a year, and each session lasts approximately four minutes. This compares favorably to some of the leading online platforms in the market today. For example, users spend about six minutes per session on Amazon, and roughly eight minutes per session on Twitter, according to research from SimilarWeb. Q2 Smart will use this data to help our customers deliver relevant offers to account holders through the digital channel, ultimately helping them drive more products per relationship, deepening their relationship with accountholders. We continue to make excellent progress with Q2 Smart, and I'm excited as we move closer to general availability.

Finally, I'd like to mention a few select talent investments we made in the third quarter. First, we welcomed a new Chief Security Officer to Q2 during the quarter. Bob Michaud is an industry veteran with more than 30 years' experience in the space. Attracting premier talent look this is hard to do in our industry, and I view the hiring of veterans look Bob as validation of Q2's culture and direction. We also announced the hiring of a President in the quarter, and I'm extremely pleased to welcome Odus Wittenburg to the team. He comes from Rackspace, where as an executive, he helped the company grow from roughly $200 million to more than $2 billion in revenue in his nine-year tenure. He brings a wealth of experience and a track record of leadership to Q2, and I'm excited to have Odus overseeing the day-to-day operations of the company as we continue to scale.

I'm encouraged by the progress of the business during the quarter, and we'll look to close the year even stronger. With that, I'll hand the call over to Jennifer to provide some more detail on our financial performance.

Thanks, Matt. We are pleased to have delivered third quarter revenue that exceeded the high end of our guidance. Let me briefly review our results for the third quarter before turning to updated guidance for the fourth quarter and full year 2016.

Total revenue for the third quarter was $38.3 million, an increase of 37% year-over-year, and up 6% from the previous quarter. Our increased revenue in the third quarter was primarily a result of continued growth in our subscription revenue business. Subscription revenue benefitted from a full-quarter contribution from users added late in the second quarter. This was partially offset by the previously announced attrition of users from PacWest. Transaction-based revenue grew, in actual dollars, year-over-year and sequentially, and represented 17% of total revenue in the quarter, down slightly from 18% in the second quarter and 19% 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 52.3%, up from 47.7% in the year-ago period, and up from 51.1% in the previous quarter. Both the year-over-year and sequential improvements were attributable to growth in subscription revenue.

Total operating expenses were $23 million, up 36% from one year ago, and up only modestly from the previous quarter. Sales and marketing expenses were $8.4 million, up 34% year-over-year, but down 8% sequentially. The year-over-year increase was primarily due to investments in head count, while lower sequential spending was the result of our annual customer conference, held in the second quarter.

Research and development spending was $7.5 million, up 31% year-over-year, and up 4% as compared to the previous quarter. The increased R&D, year-over-year and sequentially, reflects increased head count, as well as the acquisition of Social Money in November of 2015.

General and administrative expenses were $7.2 million, up 42% from a year ago, and up 16% from the previous quarter. These increases were driven by the management team additions that Matt referenced earlier, as well as higher professional services spend and external audit fees related to the accelerated SOX compliance that I discussed with you during our second quarter conference call.

Adjusted EBITDA was $-1.1 million, compared to $-2.2 million in the year-ago period, and $-2.3 million in the second quarter. Both the year-over-year and sequential improvements were largely a result of higher revenue and gross margin, while the sequential improvement also benefitted from a decline in spending related to our annual customer conference, held during the second quarter, partially offset by the higher G&A spending in the current quarter. As I've told you in the past, I expect continued sequential improvements in adjusted EBITDA, posting our first quarter of positive adjusted EBITDA as we exit this year.

We ended the quarter with cash, cash equivalents and investments of $92.3 million, down slightly from $95.6 million in the second quarter, driven primarily by the continued build out of our facilities expansion. Cash flow from operations for the third quarter was positive $1 million, while the company incurred net capital expenditures of $4.8 million. The majority of the capital expenditures relate to tenant improvements at our facilities in Austin and Lincoln, and I expect spending related to tenant improvements to drop significantly in 2017.

Let me wrap up by sharing our fourth quarter and full-year 2016 guidance. We forecast fourth quarter revenue in the range of $41 million to $41.6 million, and full-year revenue in the range of $149.1 million to $149.7 million, representing 37% to 38% year-over-year growth. Consistent with the expectations we set earlier in the year, we expect to transition to positive adjusted EBITDA in the fourth quarter. We forecast fourth quarter adjusted EBITDA in a range of positive $900,000 to positive $1.3 million. That will result in full-year adjusted EBITDA of $-4.5 million to $-4.9 million, which represents a year-over-year improvement in adjusted EBITDA of 40% to 45%.

Now let me turn the call back to Matt for his closing remarks.

Thanks, Jennifer. In closing, while I'm encouraged by the progress of the business, we must continue to execute in the fourth quarter, as we look to continue to improve on our sales momentum and successfully implement several large financial institutions. I'll also note that we forecast our first quarter of positive adjusted EBITDA in the fourth quarter. This represents a key milestone for the company, a milestone that I believe both customers and investors will view favorably.

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

(Operator Instructions). Your first question comes from Tom Roderick with Stifel. Your line is open.

Yes, good morning. Thanks for taking my question. Matt, I wanted to just follow up with you on the topic of some of the things you discussed last quarter, and it sounds look some of the concerns and the pause that you saw at the end of the quarter is progressing. Hoping you can provide a little bit more detail on what's sort of happening with those discussions with key decision makers. I know that you had a few banks that were specifically citing Brexit at the end of last quarter and kind of keeping their wallets in their back pocket. But can you talk a little bit more about what encouraging sales activity means to you, how those pipeline discussions are progressing, what the level of concern around Brexit and external factors look like these days? Love to just hear some more color on that. Thank you.

Yes, thanks, Tom. So the last quarter, we had talked about the delay in decision-making, and one excuse I got from one financial institution was Brexit. In general, there was more macro concerns around interest rates and other things. But in general, we've seen some of the ones that delayed convert, and we're seeing positive signs from the other financial institutions that we're dealing with. I think getting through this election, the next 60 days are really important, and that's usually a big decision-making time in the industry, or at least in our space, for conversions, and I feel really good about it.

One of the things that's happened during this delayed decision making is we've been able to go out, myself, other leaders in the organization, and make sure that we're articulating our story around the value proposition of the platform. And we're able to do that and meet with these financial institutions. I still there is some concern, some macro concerns of the buyers out there, particularly on the bank side of things. I've had many conversations with executives at these banks that there's just -- there's not a rush right now.

But, with that said, I feel good about the pipeline that we have. I feel good about our product and our technology and our story, and how it resonates with them. But I'd like to see the next 60 days play out and how they convert. But I feel like we have a better understanding now of what's going on out there. And I think the sales team has adapted appropriately, and we are fully engaged in those deals.

Perfect. One quick follow-up for me. You've been talking more about the Corporate Banking solution now for the last several quarters, and I thought it might be a good time to dive a little bit deeper into that product line. Curious how you're sort of building up the salesforce to cross-sell, upsell that product. And then, when you get into corporate banking competitive situations, how does the competition differ, or does it at all, and what are the one or two key points of differentiation that you guys are able to really win with in the marketplace for the Corporate Banking solution? Thanks.

Yes, thanks, Tom. So as far as the salesforce go, the sales reps are pretty much the same. What we have to add is depth, and we actually have a lot of depth in the organization around people that understand the Corporate Banking product suite, because it is complex, and as I've said in the past, it's a living, breathing thing. So whether it's solutions consultants or product managers that have to go out and explain our strategy around that and why we think our product is differentiated, and why it's important for these financial institutions to look at a new product. And when you get into the differentiators, at the end of the day, the people we compete against have legacy technology that was built on -- has legacy architecture. It really struggles to adapt to modern technology, touch-enabled screens, modern browsers, look and feel. And as the corporates, the businesses that use this technology begin to convert to mobile, tablet, touch-enabled PCs, that pressure is going to really start to mount itself on these financial institutions, because that's where Bank of America, Wells, Chase, and Citi are investing. They're investing in that technology.

So we feel look we're the only one out there that has a proven track record of innovating and rolling out new technology on a modern stack, and able to tell that story. And by taking the customer we referenced live on the product, gives us a leg up and actually, it gives us the ability to go show where's it's up and running in production. We have a long road to go. These systems that we're trying to replace are 20 years, 30 years old in some cases. But we have the right team, the right technology, and I think we've taken the right approach to that. So the energy and excitement around it internally is continuing to grow. And then, as we go out and talk to more customers about it, they are excited about it, as well.

That's great. Appreciate it. Thank you, guys.

Thanks, Tom.

Thanks, Tom.

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

Hey, good morning Bob, Jennifer, and Matt. How are y'all?

Hey, great, Terry. How are you?

Good, Terry.

It's earnings season. That's about all I can say. So quick question in terms of registered users. It was about 200,000. I think the last time it was that low was back in 3Q 2014. Was that about what you were targeting for the quarter? And going forward, should we think that maybe there's a shift from kind of quality versus quantity, because maybe some of these newer products are more kind of banking-customer focused?

Let me talk a little about the user account piece. There's two elements there. One is we had talked about two large corporate go-lives, or one corporate go-live and one business-focused go-live, which typically takes away from the number of users you have but adds more in the way of RPU. So that's one of the things that contributed to the number. And the other things is I know this is a quarterly call, but if we back up a little bit, we put 800,000 users in the ground in the second quarter. So I don't want to penalize the implementations team for doing just an extraordinary job in the second quarter of delivering a record number of users. So we probably borrowed some from the third quarter in that capacity.

Moving forward, I think you'll see more normalization in the fourth quarter as we add more users. So I don't think you're going to see a concentration of lower user counts moving forward. This is a little bit of timing. The third quarter, there's not as many go-lives. So it was still up, but let's just back up a little bit and look at the totality of the year.

Yes, okay. And Matt, in terms of -- congrats on bringing in some new senior leaders and talent, kind of beefing up the management bench. But how do we think about some of these additional leaders you're bringing on with lots of experience, and really thinking into 2017, could we see changes, kind of the way you're structured in the sales organization, operational? Just trying to understand how you evolve, considering you've got some new senior leaders, and they may want to make their mark on the business.

Yes, so we added the president, Odus, really for a couple reasons. Number one, I think succession planning is a very important part of my job, and I want to make sure I'm hiring really good people. And you think about his experience, about 10 years at Rackspace, saw the company go from $200 million to $2 billion. They are a growth company that also had profitability, which is right where we are when we talk about the fourth quarter going forward. His experience with not only building a company look that, but also the culture and their customer-centricity is something that we want to make sure we have at this company, as well. So he is smart, he's passionate, and he has experience, which I think are three really important things to have in a company. He's out meeting with customers, employees, and prospects on a regular basis. In fact, he's on the road today.

So, from a structural perspective, we always evaluate the organization. There's always tweaks that we make. I won't go into all those right now, but when you're growing at the pace we're growing, you've got to make changes that are looking forward, rather than thing that may have worked in the past. So there's not going to be anything drastic, but there are always going to be efficiency changes that we try to add to make us a better company.

Okay, and Jennifer, just real quick, the CapEx for next year. I mean, are we talking a major step-down or just not growing?

I don't think a major step-down, but you will see a step-down. I think we're going to end this year closer to 7% of total revenue, and it'll go back down to the normal 5% to 6% range next year, I would expect.

Okay. All right, thanks, guys.

Thanks, Terry. Appreciate it.

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

Hey, thanks. Two questions. So one, kind of bigger picture with regard to, you know, you're getting a lot of companies go live, and you have a bolus of good winds that you need to get live. To what extent can and will you think about pushing these things out to parts of the SI partner -- you know, create an SI partner ecosystem to have them maybe do the -- maybe the more perfunctory stuff, and then leave your in-house staff to do the higher level stuff? So that would be one question. And then second, for Jennifer I guess, is just the big question that everyone has on the company -- and Matt, you kind of talked about executing in Q4. I mean, we know in a subscription model, 90 days out is kind of a glide path. It's just next year -- and I know you're not [GAAP], but at least at some level, is there a way you can band the potential growth rate of the company? Because I think most people are clustered around 30%. Is there a downside? Would it be as low as 20% and maybe as high as 35%, or is it 25% to 35%? I just think it's hard to talk to investors and say well, we have -- you know, our visibility is awfully low. So if there's any color you could provide on that front, that would be helpful. Thanks.

Yes, thanks, Richard. On the systems integrators front, I think one of the things that we're seeing in this tier 1 space is many of them have somebody on their side of the table that's a systems integrator, and we are working closely with them as part of the project. I think ultimately, over time, as we have more of these opportunities, there's going to be more and more systems integrators that we work with. I think that's one of the places we'd look to go in the tier 1 space. On the tier 2 bank and credit union side, that's just not the way the industry works. They buy the software from you, and you deliver it, and you work with their team to do it, and that's how we've operated.

So I think you're going to see systems integrators begin to play a bigger role in the company in the future, but it's not going to happen really fast. And then, Jennifer, you can talk about --

Yes, so obviously, a lot of next year depends on how we execute and close deals in this next 60 days, as Matt talked about on the call, so it's a little premature to give 2017 guidance at this point. But as far as your banding question, I can certainly say that we're going to end this year at just under $150 million. So if you put a 30% growth on there, you're approaching $200 million next year. It's hard to continue to grow in the high 30s. So I wouldn't expect it to be certainly any lower than 25%, so maybe a 25% to 35% is kind of a band that you could put around that growth for next year that I would expect.

Great, that's -- holy smokes, we were close, so thank you very much.

Thanks, Richard. Appreciate it.

Thanks.

Your next question comes from Brian Essex with Morgan Stanley. Your line is open.

Hi. Good morning, and thank you for takes the question. I was wondering if you'd maybe offer a little bit of color on margin expansion in the quarter, and how much of that is scale over the infrastructure, and how much is progression with go-lives and incremental margin after customers successfully implement your solution?

Yes, we're continually focused on improvements and efficiency improvements, so that always plays a part in any quarter that we have improvement. The other thing I would say is this quarter, remember, we took 800,000 users live last quarter, but a lot of those were at the very end of the quarter, so this was the first quarter that you got the full contribution of revenue from those users. So you know, the subscription growth continues from that perspective, as well as from a mixed perspective, because the transactional revenue dropped another percentage point, down to 17% of total revenue, and that's the lower margin piece. So just the continued growth in the subscription, and then also, that focus that we have on efficiency improvements within our processes and systems.

Great. And maybe just as a follow-up, as we start to look more granularly into 2017, you obviously had a sequential dip off of your confidence in the quarter. But how do you look at salesforce productivity, and how much do you anticipate in investing in sales and marketing as you try to work towards that $200 million benchmark next year?

So I think we're continued to focus on productivity improvements for sales. We've spent a lot of time in the couple of years before IPO, as well as the last two years being a public company, investing in that sales organization, building out our tier 1 sales organization and firming up the management team around the entire organization. So you are going to see us get leverage next year in sales and marketing and not have to hire as much. But we will get continued productivity improvements from the folks that we've hired, as they come fully up to speed and are carrying a full quota, as well.

Okay, is there a way to kind of couch or benchmark what percentage of that salesforce, both in tier 1 and other, is mature versus still getting up the curve?

I would say we will enter next year with the vast majority of them being fully up to speed.

All right, very helpful. Thank you very much.

Thanks, Brian.

Your next question comes from Mayank Tandon with Needham and Company. Your line is open.

Thank you. Good morning. I just wanted to drill into gross margins a little bit more. If you could just walk us through, what are some of the levers you have to drive gross margin expansion? I think you've talked about it in the past where your gross margins are running below other SAS companies, but there are many reasons for that. If you could just remind us, Jennifer, in terms of what those factors are, and how should we think about gross margin expansion longer-term?

Yes, so the levers that we've talked about before, right, we have three different pieces to that. We've got our own internal subscriptions. We also resell third party, primarily bill pay provider products, with some other smaller products, as well. But that transactional business, the resell of the bill pay, we mark up and get about a 40% margin. That, when we went public, was about 23% of our total revenue. That has dropped since then consistently, and as I said, this quarter was down to 17% of total revenue compared to 19% in the same period last year. As we moved up market to the tier 1s, many of those tier 1 customers have a large enough volume that they have bill pay direct and don't have to buy it through a reseller. So I believe, of the five deals that were signed in 2014, none had bill pay on our paper. And of the seven signed in 2015, I believe only three had bill pay on our paper. The other four were direct. So, as you've seen those tier 1 customers go live over the last six months to nine months, you've seen that decrease in the mix there, which is driving more towards our internal products, which already have a 60%-plus margin, right?

And then the other piece of it is services, which because we've not been able to establish the accounting stand-alone value of the implementation services, because we've never sold them separately and we've never sold the underlying subscriptions separately, we're forced to recognize that services revenue ratably over the term of our contract, which again I would tell is on average 66 months. And so, we're incurring a huge portion of that implementation cost, from the time the customer is signed to the time they go live, but we're not recognizing a dollar of that implementation revenue until they go live, and then it get recognized ratably over the term, along with that subscription revenue. So that's pulling down our GAAP gross margins, as well, because of the timing difference on the cost for the implementation.

Right, that's helpful. And then, if I look at your long-term EBITDA margin targets of I think 20% to 25%, if I have that number correct, what does that mean for gross margins? What does it take to get to that EBITDA margins level?

That would take about a 60% gross margin.

Got it. Great, thank you.

Thank you.

Your next question comes from Brad Berning with Craig-Hallum. Your line is open.

Hey, good morning. Just to clarify the pipeline discussion, just one more step further on that. Can you just -- I think the interpretation is, and just want to see if this is fair, that you feel a little bit better than you did at the end of the last quarter, specifically in regards to the possibility for fourth quarter 2017 impact on earnings. Now, obviously, you've got to execute the pipeline this quarter, but it sounds like you probably feel a little bit better about that pipeline potential than you probably did a quarter ago, and I just wanted to give you a chance to kind of expand on that a little bit more.

Yes, Brad, I feel better than I did 90 days ago about the clarity that we have around the delayed decision making. And I feel good about the opportunities that we have in front of us that we need to convert over the next 60 -- it's not just 60 days -- over the fourth quarter, first quarter, and moving forward. So yes, I feel better today than I did 90 days ago.

Okay, thank you. Secondly, from a new product development standpoint, you guys continue to innovate. Can you talk a little bit about some of the fourth-quarter product launches that you're working on, give us an update on where you're at on those?

Yes, so the big product that we talked about, obviously, on the call was Q2 Smart, which is ultimately kind of where we need to be with our customers. Which is they want to take all of these interactions that are happening in the digital channel and get meaning out of them, and be able to take those transactions and the behaviors that occur and turn them into what we would call conversations with a customer to say it looks like you may need a line of credit. It looks like you may need a car loan, a student loan, a savings account.

And so, the investment we're making in that is ultimately what the promise of the single platform is. You take all of the behaviors that occur on the devices, and then you take the transactions, and you marry those together to help the bank or the credit union understand their customer or member better, so that they can provide them great service. And so, that's an exciting part of where we've always wanted this company and this platform to go.

And then, we're also working on other things that involve acquiring customers, onboarding them, as well as processing them in a way that drives down the cost for the financial institution. And the Corporate Banking product, as I mentioned, it is a living, breathing thing that we're going to have to work on for years and years to come, but we've got a great jumpstart on it. So those are the things that are exciting for us, and we hope to hit general availability on Q2 Smart in the first half of next year. And the Corporate Banking, obviously, we got one in the ground last quarter, and we'll continue to push ahead on that.

Excellent. Good luck on the fourth-quarter execution.

Thank you, Brad. I appreciate it.

Thanks, Brad.

(Operator instructions.) Your next question comes from Matt Hedberg with RBC Capital Markets. Your line is open.

Hey, it's Dan Bergstrom for Matt Hedberg. Thanks for taking my questions. Maybe just on Centrix, it's been about a year since you've acquired the asset. Obviously, you're growing, committed to it, new offices, expanded presence in Lincoln. But I'm just curious about, at the time of it, when it was acquired, if I remember correctly, I think it essentially had no outbound sales efforts. So obviously, it's in demand, but maybe you could talk about the experience of enhancing distribution and any confidence you've gained, knowing that you can quickly ramp up additional or acquired products.

Yes, the Centrix acquisition has been fantastic. I think if you talk with the folks up in Lincoln, they are extremely happy about it, and then the team here, obviously, in Austin. We've known them for a long time, and so I couldn't think of a better team to put together with the company than Centrix.

From a sales perspective, we have a team that we've put together that does outbound calls and leads in and closes deals for Centrix, for some of their products, without having to sell our platform. I think either this quarter or last quarter, they signed a tier 1 financial institution. It didn't have anything to do with the Q2, the unified user experience platform. It was one of their products. And so, they're out there making a lot of ground. The product that we announce, the dispute tracking system that they rolled out this quarter, that's gaining a lot of traction, as well. So there's a lot of opportunity there. They also have reseller channels, where other companies resell Centrix products, as well. So it allows us to get out there and talk to more customers, get the Q2 name out there, show them great products, great service, so there's a lot of opportunity.

As far as other acquisitions, that obviously is something that, when we're talking with one of those companies or when we're evaluating them, it would be that we have a track record of -- we don't necessarily get rid of people. We help you grow your business to what you want it to be. So it is a role model for what we'd like to do with our acquisitions going forward, and we're extremely pleased with them, and we're continuing to invest in the Lincoln office. As you saw, we had a press release. We were able to go there and meet with the governor and the mayor, which was an exciting time for us. And also, we put a great office right in Downtown Lincoln, and we continue to acquire talent from the University of Nebraska and the surrounding area. So we think it's a great opportunity, and we'd look to do it at other places.

And then, maybe for Jennifer, Jennifer, on G&A, you know, we saw the expected uptick this quarter in the [LINE ITEM] with SOX expenses you talked to in the prepared remarks. Just curious if that expense is all in at this point.

So that expense continues into Q4, as well, as we continue to work towards that full SOX compliance. So I would expect the Q4 G&A expense to be flat to maybe slightly down from what you saw in Q3, before we start gaining leverage in 2017. But we do have more expense here in Q4.

Great, thanks.

Your next question comes from Brad Berning with Craig-Hallum. Your line is open.

Sorry; I thought I'd get one more follow-up in the queue here. Just on the adjusted EBITDA going positive and the sequential improvement comment that you made, just wanted to give you an opportunity to talk about going forward from here. I think you had commented that that could potentially be sequentially improved as we go into 2017 on the last quarter call, and just wanted to give you a chance to explain if that's still the case or if there's any other things that we need to be thinking about from a quarterly kind of sensitivity to that. And just, should it grow as the revenues grow, at this point?

So, yes, we will continue to remain positive go-forward, and I would expect that you would see the same sort of trend from a quarterly perspective that you've seen over the last couple of years, right? It'll stay relatively flat in the first half of the year, to where we exit this year, and that's the investment that you make at the beginning of the year, always for that year. Plus, and then in Q2, our annual customer conference. So it will be up slightly, relatively flat for the first half of the year, and then tick up nicely in the back half, just like it did this year.

Thank you for that clarification.

There are no further questions queued up at this time. Ladies and gentlemen, this concludes today's conference call. You may not disconnect.