Good afternoon, my name is Heather and will be your conference operator today. At this time, I would like to welcome everyone for the Q2 Holdings Second Quarter 2014 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be question-and-answer session. (Operator Instructions).

Thank you. Mr. Bob Gujavarty, Vice President of Investor Relations. You may begin your conference..

Good afternoon and welcome to Q2 Holdings second quarter 2014 earnings call for the period ending June 30, 2014. I'm Bob Gujavarty, Vice President of Investor Relations and with me today on the call are Matt Flake, our President and CEO and Jennifer Harris, our CFO. As a reminder, today's conference call is being broadcast live via webcast.

In addition, a replay of the call will be available on our website following the call. By now, you should have received a copy of our press release that was distributed this afternoon. If you've not, it is available on the Investor Relations section of our website.

Please remember the certain statements made during this call including those concerning our business and financial outlook for the third quarter and full year 2014.

Our growth opportunities and expectations, our long-term financial targets, areas of strategic focus and investments including our key corporate initiatives, our market opportunities and steadied demand for our products, the benefits of our products including our new 4.0 release and the strategic advantages they offer, our anticipated timing and return on our prior investments including our datacenter upgrade and salesforce expansion.

Our anticipated benefits and costs of implementing larger customers, future product improvements and functionality, our ability to implement new customers on schedule, our expectations recurring growth and number of users and changes in revenue mix and the result that impact on gross margin, are forward-looking statements.

These statements are subject to a number risks, uncertainties and assumptions described in our SEC fillings including our Form 10-Q for the second quarter of 2014 which we anticipate following with SEC on or before August 14, 2014 and risk factors describing our final perspective dated March 19, 2014.

Should any of these risks or uncertainties materialize or should any of our assumptions prove to be incorrect, our actual results could differ materially and adversely from those anticipated in these forward-looking statements.

These statements are also based on currently available information and we undertake no duty to update this information accept as required by law. Cautionary statements including these forward-looking statements are further described in today's press release. 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 are reconciled to GAAP and 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 or must we state the measure as 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 to Matt Flake..

Thanks Bob and thanks all of you for joining us today for our second earnings call as a publicly traded company. During today's call I'll provide highlights of our second quarter 2014 results including a few key sales wins and some important recent developments.

I will then turn the call over to our CFO Jennifer Harris who will take you through the financial results in more detail, including our outlook for the third quarter and full year 2014. Q2 Holdings is pleased to announce strong results for the second quarter.

During the quarter, we generated total revenue of $19.2 million, exceeding the top end of our guidance of $18.2 million and up 36% year-over-year. In addition, we are pleased to announce that we ended the second quarter with a total of 3.9 million registered end users on our platform, up 36% year-over-year.

We saw great sale success in the quarter with above plan execution in all of our target markets. The majority of second quarter wins were institutions of $5 billion in assets and below, we commonly refer to these segments as tier 2 and tier 3 institutions.

This is where the majority of our sales team is focused and we are experiencing continued momentum with banks and credit unions in these segments. We also added two more top 100 banks, helping us achieve the top end of our goal to win three tier 1 deals in 2014.

Tier 1 institutions typically have a larger number of accountholders and potential registered users. And because Q2's growth is driven in large part by more registered users on the platform, we believe adding larger customers will continue to drive strong revenue growth and over the long-term margin expansion.

These institutions help accelerate the innovation of our product, helping customers of all sizes deliver differentiated products to their accountholders. We believe winning additional tier 1 contract directly translates into more sale success in tiers 2 and 3, by further reinforcing the scalability of the Q2 platform.

We are excited about the continued performance of our experienced sales teams who are actively targeting and partnering with regional influencers aligned with our mission to deliver innovative technology solutions. Now I'd like profile a few of our key second quarter wins.

These wins will provide a high level view of why Q2 solutions are playing a central role in the transformation underway in the regional and community banking space. The second quarter saw a number of key Tier 2 additions.

One of those, a credit union in the Northwest shows Q2 to replace their core provider’s online banking solutions provided at a lower price than the Q2 Solution. This credit union shows Q2’s single platform for its ability to help drive a consistent branded experience to their members regardless of device.

This customer is focused on growing its commercial business accounts and believes Q2’s integrated commercial functionality and multi-layered security solutions will help them deliver on their growth strategy. We continue to see our platform winning with credit unions for its combination of commercial functionality and attention to user experience.

As I mentioned earlier, we also added two Tier 1 banks in the second quarter, one in the Southeast, the other in the Southwest. Both of these institutions have over $10 million in assets and have a large number of retail and commercial account holders.

In these wins, the bank purchased the retail and commercial functionality of our platform, which we believe demonstrates the breadth and depth we have been able to achieve with our single platform architecture and its ability to provide comprehensive solution to these banks virtual deliver channels.

We believe our platform’s ability to help customers adapt to new technologies is playing a central role in helping banks of this size remain competitive, grow market share and drive operational efficiencies that are difficult to achieve with desperate systems.

These wins were against two of our traditional competitors in the space, point systems provides and core providers. We are also competing favorably against payment processing companies and we’re seeing banks and credit unions continue to rely on us to drive innovative design and functionality to their accountholders.

In addition to our sales success, I am proud to announce that we have successfully released version 4.0 of our platform. This release supports an enhanced user experience across online, mobile and tablet.

It also delivers full mobile commercial banking functionalities, specifically designed to help our customers attract, retain and grow their business accounts. Announcing general availability of this product ahead of schedule is another example of operational execution from our product, development and delivery teams.

We believe this release reinforces our reputation as an innovation driven company and raise the foundation for our future product direction, which includes more advanced commercial and treasury functionality. The success of our second quarter is also marked by continued growth in a number of registered end users on our platform.

We exited the quarter with 3.9 million registered end users, representing a 36% increase over the prior year. While we expect end user growth to fluctuate from quarter-to-quarter, we are pleased with a continued operational execution of our delivery team.

Finally we are making significant strides in moving Umpqua Bank one of the premier financial institutions in the country live on the Q2 platform. They have signed off on the product and we are recognizing revenue as of the second quarter.

We believe the progress we have made with Umpqua Bank further demonstrates our execution in bringing customers live on the platform on or ahead of schedule.

As our momentum continues we will maintain our focus on driving three key corporate initiatives expanding our sales reach and increasing sales productivity to continue acquiring new customers and cross selling to existing customers.

Scaling our business to continue providing a world class customer experience while aligning with our goal of improving gross margins and building new industry defining products, a hallmark of our success. We are proud of the second quarter results and excited about the opportunity ahead of us.

Our revenue model is characterized by high revenue retention rates, long-term contracts and high revenue visibility and we're focused on top-line revenue growth as well as margin improvement. The fundamentals of our business remain the same and we believe we are extremely well positioned to pursue our growth strategy moving forward.

With that, I'd like to hand the call over to Jennifer to discuss our financial performance..

Thanks Matt. We are pleased to have delivered a strong second quarter with results that were above our expectations for revenue and adjusted EBITDA. I will quickly review our results for the second quarter, before finishing with updated guidance for the third quarter and full year 2014.

Total revenue for the second quarter was $19.2 million, an increase of 36% year-over-year and above the high-end of our guidance of $18.2 million.

The revenue over-achievement in the second quarter was a result of the addition of registered users from new and existing customers including Umpqua Bank which we brought live ahead of schedule and approximately $400,000 of one-time revenue related to the transition of a reseller agreement to a referral partner relationship.

We priced our solutions based on a number of solutions purchased by our customers and the number of registered users utilizing our solution.

We earned additional revenues based on the number of bill pay and certain other transactions that registered users perform on our virtual banking solutions, in excess of the levels included in our standard subscription fee.

As a result, our revenues grow as our customers buy more solutions from us and increase the number of registered users utilizing our solutions. And as those users increased their number of transactions they make using our solutions.

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.

While we continue to invest an improvement in our implementation processes and infrastructure to drive gross margin improvement, gross margins will vary from period to period depending on factors specific to each period such as the amount of implementation services required to deploy our products relative to total contract value, timing as new customer go live and the mix of internal and third-party revenue, product revenue.

Non-GAAP gross margins rose to 44.2% up 410 basis points from the prior quarter, accelerated go live and higher than expected onetime items combined contributed to roughly a 150 basis points of the sequential increase.

I would like to remind investors that given the disparity between the subscription and services gross margin, the mix of revenue has significant implications on gross margin, our subscription revenue generates higher gross margin than services revenue.

Tier 1 customers typically require larger service engagements and drive a higher mix of services revenue relative to the smaller Tier 2 customers. The greater mix of services revenue generated by Tier 1 deal will be a headwind to gross margin improvement in the short term.

However, over the long term, we believe the higher subscription revenue from Tier 1 customers will lead to long term gross margin expansion. Additionally, our accounting and services revenue and expense acts as a headwind to gross margin improvement.

We expensed approximately 60% of services costs when performed while the corresponding revenue is recognized over the initial term of the contract. Therefore the GAAP gross margin impact of new customer implementations is negative in the first year, but should not lie in later years.

Remember that the cash impact is less negative as we typically collect cash for the implementation upfront when the services are performed.

We expect quarterly fluctuations in gross margin driven by changes in mix as well as the number of customers who go live in the period, but we remain committed to delivering consistent annual improvements in gross margins as we progress towards our long-term target of 60% plus.

Over the long-term, we believe gross margins will improve as the revenue from high margin subscription revenue within our installed base, increases as a percentage of our total revenue. And we begin to gain efficiencies of scale and leverage from our data center and services infrastructure investments.

Turning to operating expenses, we continue to make investments to support our rapid growth. Our total operating expenses were $12 million, up 37% from one year ago and up 7% quarter over quarter. Sales and marketing expenses were $5.8 million, up 43% year-over-year and 9% sequentially.

The year-over-year increase is driven primarily by the investment in sales headcount we made in 2013. The sequential increase was due to our customer conference which occurred in April of this year. Research and development spending was $2.7 million, up 28% year-over-year and consistent with Q1 spending levels.

The increased R&D spending year-over-year reflects increased investments in headcount to support enhancement to our existing platform as well as new product development. We plan to continue to invest in new and innovative products and the continued improvement of our platform.

General and administrative expenses were up 33% year-over-year and up 8% from the prior quarter at $3.4 million. We added G&A headcount in 2013 in preparation for becoming a public company and will continue to invest as the business grows and we operate as a public company.

The sequential increase was due largely to higher spending on public company expenses. We expect G&A spending will level off in late 2014 and then begin to steadily decline as a percentage of revenue.

Adjusted EBITDA was negative 2.5 million better than the high end of guidance of negative $3.7 million and an improvement from negative $3.4 million in the previous quarter. The better than expected results were driven primarily by the higher than anticipated revenue and gross margin.

We ended the quarter with cash and cash equivalents of $94.9 million as the company raised approximately $13.7 million in net proceeds from the exercise of the IPO Over-Allotment Option and generated $384,000 in cash flow from operations. This was partially offset by $638,000 of capital expenditures and a $4.2 million pay down on our line of credit.

Capital expenditures are down year-over-year as we made higher investments in a new corporate headquarters facility and data center capacity in 2013. Our deferred revenue on June 30th, was $32.3 million, up from $28.5 million on March 31st. I’d like to remind you that we bill our customers for their subscription fees on a monthly basis.

And therefore we do not believe it is meaningful to look at deferred revenue as an indicator of future revenue. The increase in deferred revenue reflects customer deposits collected during the quarter partially offset by revenue recognized during the quarter for services engagements.

These advance payments were also a primary driver of the positive operating cash flow in the quarter. Let me wrap up by sharing our third quarter and full year 2014 guidance. We forecast third quarter revenue in the range of $19.5 million to $19.8 million.

And we are raising our full year revenue guidance to a range of $76.2 million to $76.8 million representing a 34% to 35% year-over-year growth rate. We forecast third quarter adjusted EBITDA of negative 3.4 million to negative 3.1 million and for the year negative 12.4 million to negative 12 million.

In summary, we believe the strong second quarter results reflect our commitment to growing revenue and improving gross margins. Matt alluded to accelerating demand from tier 1 customers; and to support this demand, we will incur incremental services expense in the second half of 2014.

This will moderate the pace of gross margin improvements in the near-term but we remain on target to deliver annual improvements in gross margins and believe the company can deliver operating margin leverage as we continue to target annual revenue growth of 30 plus percent. With that let me turn it back over to Matt for his closing remarks..

Thanks Jennifer. I’ll close by saying we are pleased to deliver strong second quarter results. We have been able to overachieve on our guidance for two quarters in a row and I am encouraged by the progress of the business.

Q2 is in the early innings of a multi-billion dollar market opportunity and with our experienced team; high retention rates; long-term contracts; and high revenue visibility, we believe the company is poised to drive strong top-line growth; profitability; and shareholder value over the longer term.

With that let me thank you all for joining us on the call. And I will now turn it back over to the operator for questions..

(Operator Instructions). Your first question comes from the line of Sterling Auty with JP Morgan. Your line is open..

Thanks. Hi guys..

Hey Sterling..

Hey Sterling..

Hi. Let’s see the couple of areas and then I will jump back in the queue, let’s start with the gross margin.

I wasn’t clear on -- let’s see the one-time item first, what exactly was the one-time benefit in revenue that helped gross margin?.

We had approximately 400k of revenue from items that we recorded in connection with the transition of reseller agreement that we had to a referral partner relationships..

Okay.

And once you become a referral partner, what does that actually mean?.

So now instead of them actually reselling our product, they will be working with us and referring customers to us and [Technical Difficulty]..

Oops! I don’t know if it was my line or everybody’s line, you cut out there, Jennifer..

Yes, sorry Sterling. So now, instead of the reseller actually selling to the customer on their paper, we will be taking those direct and they will receive a referral payment for those customers..

Okay.

And the 400k that you got -- that actually went into revenue or that went just against cost of revenue?.

That actually went into revenue; that was forfeited deposits on a couple of projects as a result of the transition from the reseller agreement to the referral..

Okay, right, great. And I think we can back into then the go live.

Just a housekeeping one, the Umpqua users there counted in the 3.9 million or -- and I would imagine since they just want live, that's kind of bear minimum?.

That's exactly right, it is a small number. They just went live in this quarter. So you’ll see that number begin to grow as they roll it out and register more end users on the new products..

And Matt, that kind of brings me to, so what are you seeing out of your customer base now in terms of doing marketing, advertising programs or other things to drive further adoption?.

Well, we’ve been driving campaigns for our customers to drive everything from more e-statements, bill payment, online banking, small business. And so obviously we're happy with the results of 3.9 million end users to add that many in a quarter without many of them coming from Umpqua.

So, I think you’re seeing the customers lean on us a little bit more to help drive marketing programs, and the advertising goes along with that. So, we’re obviously happy with the 400,000 end users we added in the quarter..

All right, last question.

So, you hit the Tier 1 bank goal that you wanted for the year but how does that pipeline look and what should our expectations be on the possibility of seeing further closures in 2014 versus what (inaudible) 2015?.

Patience is amazing Sterling, I thought that would be your first question. So, we’ve been -- the word expectation is good. We’ve been committed to making sure we set the appropriate expectations and we said we would three in 2014, we hit that number. We executed, we hit it early.

So, at this point, obviously there is a tremendous amount of momentum not only in Tier 1 but Tier 2 and Tier 3 as well. So at this point, we're going to -- not add anymore to 2014. We're going to keep it at three just because of the sale cycle on the timing of those deals takes a longer but we will sign more deals.

It's just a matter of I don't want to set an expectation for ‘14..

Got it. Thank you, guys..

Certainly, thanks.

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

Yes. Hi. I am Matt Van Vliet on for Tom. Great quarter, guys. Thanks for taking my question.

In terms of the Umpqua go live being a little early, that first question, what drove that and kind of how early or where were you expecting that before to then go live this quarter?.

We anticipated Umpqua coming on in the beginning of the fourth quarter of this year, what drove it was just solid execution by our implementation team and their implementation team. If you think about it we signed that contract a year ago, and they made an acquisition double the size of the organization.

So, everybody worked really hard to get there, so it was just a function of both teams focused, working well together, they are a great partner. So, we just executed on the plan and worked really well. And so we've got more work to do to get them live, get all the users on their board, really happy with the results..

And then is that something that is fairly unique there or can you use that as part of sales pitch moving forward for larger organizations that you deliver, not only deliver early, but are a great partner to work with.

Or is this just kind of one-off situation that you extended out the time for the fact that you mentioned whether acquisition and such that, maybe this isn't the best case to use moving forward?.

No, it's just a great case to use, to executive on a deal this size our first Tier 1 to hit them one time, they are a little bit ahead of schedule as well as to be able to use them as a reference as we continue to grow the tier 1 space it’s fabulous. It also works for the tier 2 and the tier 3.

And we're doing a great job executing on the tier 2 and the tier 3 as well, when you think about adding 400,000 end users in the quarter, there is a lot of delivery that took place. So, it's a positive, Umpqua is a big name in the industry and we'll continue to see the momentum in the tier 1 space come from that.

And then people, some people are waiting to see the progress of that, I believe in the market. So, we think you are just going to see more momentum after getting Umpqua live..

And then in terms of the pipeline, so you are not raising the tier 1 expectations for obvious reasons, those deals take quite a while to finally get over the goal line.

But how about other larger Tier 2s and as we’ve seen in the past that just because of you signed the Tier 1 that doesn’t mean that it’s the largest deals out there in terms of contract value, are you seeing any Tier 2s whether it’d be on the bank or the credit union side that can start to even kind of push into the maybe what we would characterize is more of a Tier 1 size contract and kind of what you’re expecting the rest of the year for those types of deals?.

Yes. So, let me just back up and make sure that we’re on the same page, last year we doubled the sales force. It takes our sales rep 9 to 12 months to become productive. And then it takes six to nine months especially in that Tier 2 before it hits the top-line.

So, we raised our annual guidance in this quarter and I think it takes some time to get those live, but we see a tremendous amount of traction in the Tier 2 space with our story, we had a solid quarter and with our referenceability of our customers our data center, we do a really good job of keeping it up and running and for some reason some of the competitors struggle with that.

We pick up the phone when you call, so there is going to be more opportunities in the Tier 2 space. We feel very good about the outlook for the rest of the year and as well as ‘15..

All right, great. Thank you guys..

Thanks Matt..

Thanks..

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

Yes. Thanks guys for taking my questions and congrats on the quarter as well..

Thanks Matt..

I guess following up on the last question you mentioned some of the sales force doubling last year. I guess I am curious, it looks to me like it’s even with the ramp it’s probably starting to pay dividends with the 400,000 users you added this quarter.

Is there a way to quantify the productivity gains you’re seeing sort of on a preliminary basis and I guess I am curious what are you thinking for the capacity plans in the second half of the year?.

Capacity in the sales organization?.

Correct. So we doubled in ‘13 and we are not, we are adding more to commence toward the growth that we are talking about 30 plus percent from the sales organization perspective, that includes relationship managers as well as net direct sales reps.

So I think what we are focusing on is increasing productivity out of each sales rep, leveraging the marketing the brand recognition in the industry and then also trying to drive, we continue to -- we want to monetize our innovation. So we are an innovative company and we intend to get paid for it.

So you are going to continue to see us invest in the sales organization but the leadership in that organization is going a great job of driving more productivity out of it. So we are getting we continue to get more of that and our win rate remain the same..

That’s great.

And with the release of 4.0 of your Virtual Banking platform, I am curious when you think about cross sell I believe most of your customer use maybe between 8 and 10 of your SKUs, how should we think about that progress with some of these new mods, anti-fraud, analytics, mobile things of that nature?.

We continually cross sell as you mentioned we are underpenetrated we have more than 30 SKUs of a product and then our average customers have 9 to 10. So as we continue to innovate we’ll continue to cross sell those products.

I am glad you mentioned 4.0 because I would say that what you are going to see with 4.0 is, as part of the value that we deliver to our customers and as that we rollout new technology and I think you are going to see it have an impact across the company in several ways.

Number one, the pace in which we innovate seems to be significantly faster than what the competition can innovate, and when I say innovate, I mean actually deliver the product into the ground and have people using it we have reference-able customers on our 4.0 right now.

And so you are going to see with net new customers the ability for us to continue to win and add value to those transactions. With existing customers, it’s about driving more utilization of the product and as the product gets broader, more users get on the system we get paid more money.

And lastly anytime you rollout a new release of software there is operating efficiency that comes with it, you just get better with new releases. So you're going to see us continue to drive long-term operating margins up by innovating on our platform.

So there is a tremendous opportunity for us both on the net new side the cross-side and within the certainly to drive efficiencies..

That's great. And then maybe one more Matt. Texas is clearly our most matured market, I think you're pick it up 80% penetrate or high-teens and is one of the T1s was in the Southwest the other was in the Southeast it sounds like.

Can you talk about some of your other fast growing regions, what's driving that growth and perhaps could we see some penetration rate similar to Texas?.

Yes Matt, I would say that obviously Texas because of Hank starting here, me being here for a long time, we've got a solid penetration rate. We serve that search as a model for us, what we think we can do in other markets.

The way we've grown the sales organization right now, they're coming from all over, we're getting them in the mid-West the Southeast the Northwest and we saw that big trading union in the Northwest this quarter.

So we're going to as we drive more sales reps up and they drive their productivity up, I think you're going to see certain regions continue to grow, we're only 3% penetrated and there is 13,000 of these financial institutions and we have less than 400 of them.

So we're only 3% penetrated in the market, its early innings is a tremendous opportunity ahead of us..

That's right. Thanks a lot guys..

Thanks Matt..

Thanks Matt..

Your next question comes from the line of Kerry (inaudible) with Raymond James. Your line is open..

Hi, this is Brian Peterson in for Kerry. Just one as a follow-up on some of the large deal commentary, there was impressive this quarter.

Can you give us a typical implementation cycle without the 12 months maybe 18 months of the two wins this quarter and maybe the win last quarter? When would we actually expect to come into the P&L?.

It's hard to do. There is not really a typical one, especially when we're new in the space. I would say, each one of them has their own characteristics and then you things like Umpqua where they doubled the size of financial institutions in the middle of the project.

I would say that the two we signed this quarter are first half of '15 we anticipate them going live and some staggered approach similar to Umpqua and the one we signed in the first quarter. We signed it right at the end of the quarter as a similar time line of in first half of '15..

Okay, that's helpful and then one more one.

Could you give us a sense of, if you look at your pipeline and maybe how many Tier 1 banks are in that pipeline versus let's call it 6 to 12 months ago are you seeing net increase or was it down little bit because you’ve closed some good opportunities or is about still?.

It's increasing..

Okay, good to hear. Thanks guys..

Thanks, I appreciate it..

Thanks..

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

Hi. This is Richard Davis for Richard Davis..

Hey Richard..

So, I was thinking on the transaction side of the business, broadly speaking, how do you think about A. the mix and B.

are there other puts and takes with your customers because they may go like, well, I don't know if I want to have - I’d rather pay a higher fixed cost versus per transaction or does that sway them for doing, I was just kind of wondering how you think about that mix of business and stuff? Thanks..

Sure, Richard I'll take that one. So, our transactional revenue in Q2 was 23% of our total revenue and that's down from 24% in Q2 of last year.

And I think while you won't see it go down dramatically, I think you'll continue to see a trend down and one of those reasons is as we sell to more of the high Tier 2 and the Tier 1 accounts, those accounts are large enough that they have their own direct relationship with bill pay providers, because they process the volume that they can get good pricing.

So, I can tell you that our tier 1 deals that we signed this year, all three of them bill pay is not on our paper any of those. So, we'll continue to see the mix of bill pay decrease, because of that I believe. From a pricing standpoint, we don't price that any differently than we do the rest of it.

We have some small number of transactions that are included in the minimum subscription fee and then everything over that is transactional pricing. We will negotiate the transactional pricing with the larger customers obviously who have more volume, but it's not any different than anything else..

Got it. And then a follow up would just be, with regard to kind of in house services versus partner deployments, bring your still early days. How do you kind of think, you see that evolving to more of a partner ecosystem or is it more of when you go the higher end guys with tier 1 folks. So, how does that play out over the next few years? Thanks..

Yes, I think that we're beginning to see with the over execution in the tier 1 space. I think we're going to find systems integrators, they are going to come around sooner than we anticipated. I think we have talked about 15 or 16, I'm pretty certain we're going to start to work with some systems integrators in 2015 for certain..

But one just quick last question. Did you say how many customers you have in total, I may have missed, I think it was like - was it 374 at the end of when we last target, I can't remember you said below 400, I just can't remember..

The last time, I was allowed to say that, I said it to Jim Cramer and it was 350..

350, there you go..

Having trouble for that..

There you go. Alright. Cool..

We'll provide the number of installed users on an annual basis..

Got it, got it. Cool. Okay. Thanks so much..

Thanks Rich. Appreciated..

(Operator Instructions). Your next question comes from the line of Michael Huang with Needham & Company. Your line is open. Michael Huang, your line is open..

Hi there.

How’s is it going, guys?.

Hey good.

How are you?.

Great. Just a few questions for you. I was going to follow-up on the business rationale for the transition of the reseller to a referral relationship.

Could you talk about kind of what the key driver was behind this? And ultimately, what’s the net benefit to the business as a result of making that transition?.

Yes. It was a partnership, we had a reseller arrangement in we had signed in 2008 and our eyes are probably a little bigger than our stomach in that case in both -- from both partnerships. It’s a great partnership; we’ve actually generated quite a few deals this year on it.

And it’s just a matter of -- at the time that we signed it, I think we both had -- we’re pretty ambitious about how we could do that. And I think we just wondered they in particular had some changes that went on in their company. And so it’s -- we're still great friend, we still work together, we resell their stuff and they refer our stuff.

So it was a mature decision on the business to Board, everybody made it and we still work very well with them and the economics work out better for us. You get a much cleaner sale by a sales rep that’s trained in our organization on how the product works and then your deployment is still much smoother and your customer set ultimately is smoother.

So we may go back to those one of these days, but right now with the momentum we have, we’re pretty happy with our direct sales organization..

Got you, okay. And I am not sure if I -- so I am just trying to jog my memory here.

So, is this the first quarter in the history where you guys have added two Tier 1s and I guess as we’re thinking about how registered users comes on line sometime in the first half of ‘15, I mean are we going to see a notable stairs up sequentially as a result of these users coming online, assuming a fairly good execution on the deployment end?.

You will see an increase in users, the two that we signed in this quarter have larger users but the one that we signed in the first quarter is not really a large user, it’s a large commercial bank, and so they don’t have as many users. So all of them are going to be different but you are going to see -- the number is going to get bigger as well.

We started the year at 3.1 million and we are at 3.9 million already. So continued execution on the tier 2 side, and the tier 3 is going to add users, more utilization of the product is going to add users and these guys are going to add users. So it will continue to go up..

Got you, okay. And then just on Umpqua.

So I was wondering if you are willing to share to kind of when in the quarter Umpqua went live and was it towards the tail-end of Q2 or was it towards the beginning and ultimately how do registered users typically ramp when a large tier 1 goes live; is it linearly or do you hit a point in time where user adoption really ramps?.

Let me comment on that and you can talk about the -- Jennifer talk about the revenue. So, Umpqua has a particular tactic that they are using to move users over which is going to be through technology; it’s going to be one at a time. And so you will see it gradually increase.

You are not going to see it a big jump in the third quarter off of those users, I don’t believe. But we will see them by the end of the year have a majority of their customers on there and then the sterling conversion will happen sometime in the second half of -- first half of ‘15. Jennifer, you can comment on the revenue..

Yes, we actually did accelerate and take them live right at the beginning of the quarter. So we have practically a full quarter’s worth of revenue from them..

Great, thanks so much. I appreciate it guys..

Thank you. We appreciate it Mike..

There are no further questions at this time. I will now turn the call back over to our presenter for any closing remarks..

Thank you very much for joining the call. We appreciate it. We look forward to talking to you next quarter..

This concludes today's conference call. You may now disconnect..