Q2 2019 Earnings Call

If you like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.

We ask that you. Please limit your questions to one question and one follow up. Thank you I would now like to turn the call over to Josh Shanker bids Sir please begin.

Thank you operator, good morning, everyone and thank you for joining us for our second quarter 2019 conference call.

With me on the call today is not like our CEO and Jennifer Harris our CFO .

This call contains forward looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance in Q2 holdings.

Actual results may differ materially from those contemplated by these forward looking statements and we can give no assurance that such expectations or any of our forward looking statements will prove to be correct.

Important factors that could cause actual results to differ materially from those reflected in the forward looking statements are included in our periodic reports filed with the FCC, including our most recent annual report on Form 10-K , and subsequent filings and the press release distributed yesterday afternoon regarding the financial results, we will discuss today.

Forward looking statements that we make on this call are based on assumptions only as of todays disgust.

Investors should not assume that these statements will remain operative at a later time and we undertake no obligation to update any such forward looking statements discussed in this call.

Also unless otherwise stated all financial measures discussed on this call will be on a non-GAAP basis.

A discussion of why we use non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most comparable GAAP measures is included in our press release, which may be found on the Investor Relations section of our website or in our form 8-K filed with the FCC yesterday afternoon.

Let me now turn the call over to Matt.

Thanks, Josh.

On today's call I will share our results and key business highlights from the second quarter 2019, then I'll hand, the call over to Jennifer for a detailed look at our financials and updated guidance.

And the second quarter, we generated revenue of $77.6 million up 33% year over year and 9% sequentially.

We had another solid quarter of user growth as well, adding more than 500000 users. This brings us to more than 13.6 million registered users on the Q2 digital banking platform and represents 19% year over year growth.

Let's start by discussing two highlights from the second quarter, our recent capital raise as well as our annual client conference connect which we wrapped up in May.

In June we successfully raised net proceeds of approximately $462 million through a concurrent convertible debt and common stock raise building our cash balance as of June 32, approximately $620 million.

This raise strengthens our balance sheet considerably and provides additional capital to continued growth through investing in innovation strategic partnerships and potential acquisitions I'd like to thank those involved for their support on the transactions and our investors for their confidence in our ability to execute on our strategy.

Now I'd like to share a few updates from our our connect conference. This year, we had record attendance with 650 clients representing close to 300 financial institutions and more than 30 prospective clients. As a reminder, connect is one of our best opportunities to engage with our clients seek their feedback on strategic direction and share progress on our product roadmap. Our theme. This year was future proof the futures our shared vision with our clients and the proof is in Q2 is execution and delivery.

This year, we also announced Q2 trust for you the first data governance and protection technology of its kind for banking and lending based on block chain technology.

We spoke with hundreds of clients over the course of a few days and we heard a few consistent themes first that our solutions are highly differentiated.

And our strategies are aligned our customers are excited about the future and we must continue to invest in innovation delivery velocity system availability customer support and overall operational excellence.

This was our broadest conference from a product portfolio perspective with representation from our digital banking platform cloud lending Q2 open and more.

I will also tell you that expansion into global markets and working with Centex has given us a much broader perspective on the competitive landscape that our customers are facing.

That broaden perspective is key in informing our strategic direction.

Coming out of connect my confidence in our vision and our alignment with our clients is as strong as ever.

And it's my expectation that the event will drive new business and cross sale activity as well as an expanded product roadmap for us going forward.

Now I'd like to shift to some commentary on our sales execution.

At the halfway point, we can say that we have outperformed relative to our expectations for the first two quarters. This is largely a result of the performance in digital banking and the increasing cross pollination of our expanded product offerings suite.

On the digital banking side, we had a strong first half balanced across tiers, one two and three and then both bank and credit Union markets. Our bank teams did particularly well in the second quarter with three tier one deals ranging in assets from $8 billion to $26 billion.

Along with continued momentum from our tier two and three teams as well.

And increasingly common characteristic in our digital banking wins with banks and credit unions is the inclusion of our corporate product suite, which we have continued to mature and expand and which helps our clients compete for new business in their markets.

This trend proved especially true in the second quarter with the majority of our new clients purchasing some aspect of our corporate functionality.

We also continue to see strong cross pollination, among our various platforms and customer bases in the quarter.

For example, one of the bank clients, we signed was introduced to our platform because they were an existing customer of the Q2 gross solution.

And scenarios like this the ability for banks to support much if not all of their front end digital strategies through a single vendor and tightly integrated technology stack is becoming a major differentiator and bringing us into more and more deals in the same vein cloud lending signed two deals with existing Q2 platform clients in the quarter highlighting another solid performance in the North American market.

With the cloud lending acquisition, we felt our existing presence could help accelerate its sales success in North America, and three quarters into the acquisition that hypotheses is playing out as expected.

And while the synergy between our platforms is a key component to cloud lendings differentiation in the market. It's important to note that it's not the only reason we are winning these lending deals in both of these bank wins there was a strong competitive environment that included a broad set of vendors both incumbent solutions.

A newer platforms that we compete with regularly.

In these deals lendings ability to serve all asset lines consumer small business and commercial was cited as an important factor.

We also continue to hear that cloud lendings ability to reduce loan administration costs, while improving the borrower experience make it unique.

In addition to its success in North America cloud lending performed well internationally, winning multiple net new and cross sale deals in the second quarter with both traditional financial institutions and Centex I'm really pleased with the progress the cloud lending sales team is making at this early stage post acquisition and we plan to continue investment into the cloud lending business to fuel that success.

The sales synergy among our platforms extends to Q2 open as well.

And we're beginning to see opportunities emerge between cloud lending and Q2 open clients to demonstrate this I'd like to share a win from the Q2 opened team in the second quarter. There was the first of its gone in this deal a cloud lending client wanted to build and offer full featured deposit accounts to their customers.

Without a bank charter this fintech client faced a rigorous sourcing and partnership process to launch their own bank accounts.

But by providing access to modern core technology and the necessary bank partnerships all through a single Apiay. The Q2 open platform was able to dramatically compressed the fintex go to market timeline.

And the Fintech ultimately decided to partner with Q2 open for its new deposit initiative.

Combined with the ability to issue loans to their customers via cloud lending. The Fintech is now able to offer a wide range of consumer lending and deposit products all facilitated by Q2.

Stories like this demonstrate how we are uniquely positioned to meet a broad range of needs for fintech companies that the traditional banking technology providers are challenged to capture.

I believe this is one of the reasons. The Q2 open team is ahead of its bookings target through the first half of the year.

We're also continuing to strategically expand the capabilities of our Q2 open platform.

And I'm excited to announce that in the second quarter, we completed an integration with visa debit processing service or visa Dps.

Within our Q2 open core processing technology. The addition of visa Dps is a processing partner provides our clients with an increased reliability and scale on the debit card components of their programs.

Given visas widespread presence in the space I believe our new partnership will only serve as a tailwind for Q2 open sales activity as well.

With that I'll wrap up my prepared remarks by reiterating that I'm pleased with our progress through the first half of the year given our sales execution, we plan to continue investing in integration.

Innovation and delivering successful client outcomes as I look at our pipeline I am optimistic and believe we are well positioned to carry our momentum into the back half of 2019 and beyond.

Thanks, and with that I will turn the call over to Jennifer.

Thanks, Matt I'll begin by reviewing our results for the second quarter before finishing with updated guidance for the third quarter and full year 2019.

We are pleased to deliver second quarter revenues that exceeded our guidance.

Total revenue was $77.6 million, an increase of 33% year over year and up 9% sequentially.

The sequential revenue increase was driven primarily by an increase in subscription and services revenue related to the Q2 platform business as a result of customer go lives in organic user growth during the quarter.

In addition, the second quarter revenue benefited from a sequential increase in revenue from the businesses acquired during the fourth quarter of 2018.

Revenue from these acquired businesses also contributed a significant portion of the year over year growth.

Transaction revenue represented 16% of total revenue for the quarter consistent with the previous quarter and up 15% in the prior year period.

As we turn to gross margin 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 52.8% up from 52.3% in the previous quarter and down from 53.3% in the prior year.

The year over year decline is largely attributable to the head count additions and purchase accounting adjustments related to the acquisitions closed in the fourth quarter of 2018.

Total operating expenses were $40.9 million up 2% sequentially and up 42% from the prior year.

The year over year increase in total operating expenses is driven by the combination of head count additions to support continued growth in the core business as well as our acquisition.

The sequential increase was concentrated in R&D and sales and marketing, where we continue to innovate and improve our existing offerings, while investing to further capitalize on the growing demand across all of our business line.

As I mentioned on the Q1 call the sequential increase in operating expenses was also due to the timing of our annual client conference.

The cost of which was partially offset by a reduction in payroll taxes.

As a reminder, payroll taxes associated with bonus payments and equity award vesting and exercises were elevated in the first quarter due to a combination of the timing of our annual bonus payments and the increase in the value of equity awards that vested during the period.

Adjusted EBITDA was $3.2 million compared to $300000 in the first quarter and $5.1 million in the prior year.

The sequential increase is attributable to an increase in gross profit driven by increased revenue combined with only a modest increase in operating expenses during the quarter.

The year over year decline is primarily attributable to head count additions and the investments made in the cloud blending and grow acquisitions discussed previously.

We ended the quarter with cash cash equivalents and investments of $617.7 million.

Up from $164.5 million at the end of the first quarter as a result of our concurrent convertible senior notes and common stock offerings in June .

These capital raises provided us with net proceeds of approximately $462 million.

After issuance costs and the associated capped call transactions, which are designed to help offset the potential dilution to our common stock upon any conversion of the convertible note.

Cash flow from operations for the second quarter was negative $7.8 million compared to negative $10.9 million in the first quarter.

The sequential improvement is attributable to the timing of our annual bonus payout and the associated payroll taxes in the first quarter.

During the quarter, we incurred net capital expenditures of $5.3 million, resulting in free cash flow of negative $13.1 million as compared to negative $16.4 million in the first quarter.

For the second half of the year I expect free cash flow to continue to so to show sequential improvement.

Which as we discussed on our first quarter call is largely dependent on the timing of collections of the upfront deposit upon customer signings.

Turning to backlog, we ended the quarter at $917 million and committed backlog. This represents a sequential increase of approximately $24 million driven by continued success in customer signings for our digital banking platform as well as our digital lending solutions acquired at the end of last year.

Now, let me turn to our updated guidance.

We forecast third quarter revenue in the range of $78.6 million to $79.6 million in full year revenue in the range of $313 million to $315 million representing year over year growth of 30% to 31%.

As mentioned on the last call our revenue Overachievement allows us to further invest back into the business and capitalize on our continued bookings momentum.

Therefore, we are forecasting third quarter, adjusted EBITDA of $5 million to $5.5 million and full year, adjusted EBITDA of $20 million to $22 million.

This reflects the cadence we discussed in the first quarter call and the impact of the purchase accounting adjustments related to the acquisitions closed in the fourth quarter of 2018.

In closing, we're very pleased with our second quarter results.

We continued to execute on operations, including the integration of our newly acquired businesses and we successfully accessed the capital markets.

With that I will turn the call back to Matt for his closing remarks.

Thanks, Jennifer in closing, we delivered a solid second quarter, we hosted a record annual client conference executed successful capital raises and continue to drive the digital transformation of global financial services.

As I look at the opportunity in front of Us I'm confident we're in a solid position to finish the year on a strong note with broad based success in our bank and credit Union markets and continued momentum in the growing fintech ecosystem.

Thanks, again for joining us today, and with that I'll hand, it over to the operator for questions.

At this time, if you would like to ask a question you may do so by pressing Star then the number one on your telephone keypad. We ask that you. Please limit your questions to one question and one follow up.

First question comes from the line of Sterling Auty with JP Morgan.

Yes, Thanks, Hi, guys wondering when the three tier one wins.

If you could remind us not only would be but the other wins, we've had both on banks and credit unions, what does the deployment, our or rollout schedule look like.

Especially here as we think about the back half and moving into 2020.

Sure Sterling.

So the deals that we signed the tier one deals that we signed in 17 remember they were all in the back half of 17, they're all as I mentioned last quarter now live on the platform. However, four of them.

Had elected to do roll out in phases three of those four are now fully live as of the end of the second quarter and the remaining one is expected to be fully rolled out by the end of the year keep in mind end of year holidays at May roll into early 2020, but it should be coming up the three tier one deals that we signed in the first nine months of 2018 are now live on the system and the remaining tier one deal is expected to go live are the remaining tier one deals are expected to go live one right at the end of 2019 and the other in the first half of 2020.

And then the four tier one deals that we signed to date. This year are all expected to be live by early next fall. So theyre all tracking to that kind of averaged 12 month timeframe.

That we've discussed previously on tier one.

All right perfect I appreciate that and can you also.

You touched upon both grow in Q2 open with some specific.

Examples but.

Can you give us a sense of.

Not quantifying exactly the contribution but how are they ramping relative to your expectations and.

At what point do we start to think about them, becoming a more meaningful contributor to the to the top line.

Sure so.

A couple of different pieces from the backlog increase perspective, just like last quarter. I think we told you that bookings from the two acquisitions contributed about 30% of the increase in backlog and that's consistent this quarter with them contributing about 30% of the increase in backlog and from a topline contribution perspective, it's still very consistent.

With what we said historically I will say with CLS as strong start to the year.

We expect to see some of those deals begin to roll into revenue here in the back half and so I do believe that cloud blending can contribute close to 5% of total revenue for 2019.

And grow its still in that same 1% to 2% of total revenue range that we've discussed in the past.

Great. Thank you so much.

Thanks Sterling Thanks Sterling.

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

Hi, Good morning, guys. Thanks for taking my question, so looking historically I and I recognize that grade math here, but I think you're probably creeping up on 30 tier ones over the years and so that gives you kind of.

Four or five good years and sort of cohort analysis looking at at what they've been historically, what they've added onto the platform how to subs have grown.

It's a much different platform than it was when you guys started selling to tier ones that I'd love to hear Matt anecdotally, especially coming off a user conference.

How the tier ones and even some of the larger tier twos, how they're reacting to a much broader platform. How many of those are you seeing come back to bite commercial how many are actively sniffing around some of the newer products, whether it's whether it's grow or cloud lending are particularly Q2 open or Q2 smart.

I just love to hear about the cross sell up sell and how the how the traction that feedback is going from those biggest customers.

Yes, Thanks, Tom I think that as we talked about when we started signing them that some of these larger tier one financial institutions.

They may buy a line of business, meaning they'll by corporate banking or business banking and then the retail group will come look at the retail offering that we have so the single platform message that we've we've driven in and then executed on the delivery side has been.

And we've been patient as well so some of these deals.

We signed a customer in 2000 and that we've talked about for Trustmark in 2014, and they bought the retail and small business and then ultimately that roll into corporate a year. Later, we are beginning to see more and more examples of that as weve and as Weve deepened our product offerings, even on the platform side, whether it's corporate banking.

Smart those types of products Syntrix, we've been able to cross sell a lot of those into the customer base.

And then you add in grow which I think was what was probably one of our top cross sold products in the quarter for second quarter I believe Thats correct, Jennifer shaking her head. So yes that was one of the top cross sell products that we had.

We're doing a good job the relation management team of going out and sharing with these financial institutions.

What the product offerings are how we're integrating them into the current product that they are using.

And how their life will become easier with a single platform with one system to administer one vendor to manage.

And so I've been very pleased with the acquisitions, but also the innovation that we've done on the product side to roll that out and so now as we walk into customers were talking about digital banking, we're talking about onboarding new accounts, we're talking about using the data that we have to open two to create new borrowers.

With the cloud lending product until that story is beginning to resonate I was with one of our larger customers.

Last month, and he and the Chief strategy Officer told me that they're all about organic growth how are they going to get organic growth put more products and more households, and one of them in our platform is the key to driving that for him and so we're going to try to drive more low loan volume as well as open new accounts, and then cross sell more products to existing customers. So.

I'm really pleased with with the product offerings. The relationship management teams ability to go in and have strategic conversations with these accounts and I wouldn't limited to just tier ones I would say in the tier two tier three space, we're spreading those products around as well.

Excellent and Matt just on that topic of of your customers trying to.

Open more accounts drive new loan volume, they're going for more organic growth.

Really intrigue and positive to hear that's Q2 opens going better than expected. So thats great you put a lot of sort of mass tracks out there in terms of landing some of these big wins and I think the message is always okay. We've got some some some great traps out there lets wait and see when the mice start showing up what's happening from a transactional volume framework on those wins that that you might have started landing last year and and how do you think about that sort of translating into revenue contribution I was on the Q2 up inside.

Yeah, I'll talk about it what I can on the growth I think you've seen about from a from an account basis on core pro our deposit processing platform I think you've seen more than 30% growth on the account side of that business and a lot of these fintechs are adding a lot of count accounts to the system.

And then they are they have different strategies and plans, whether it's rolling out debit cards or.

But we're trying to drive bill payment or whatever it might be so we're seeing a lot of good activity in those groups one of the challenges with the the Q2 open business as far as sharing it is.

A lot of these fintechs have private strategic initiatives that are happening and I just can't share, though so I would try to share as much as we can but at this point.

A lot of those those wins that we've talked about they're growing nicely and we're continuing to see great activity as we say as I said on the on the.

In the scripted version of this we had a.

We exceeded our bookings target for the first half of the year and the pipeline for Q2 open looks great for the for the back half of this year and then into 20.

Outstanding grid stuff.

Yes, Thanks, Tom.

Thank you guys nice job.

Your next question comes from the line of Matt Hedberg with RBC capital markets.

Hey, guys. Thanks for taking my question, so well done.

Matt in your prepared remarks, you talked a lot about the success of your core product I'm wondering can you can you kind of give us a sense. I mean this is you've had quite a bit of success for the past several quarters from now years.

How penetrated in your base is your corporate product.

Just trying to get a trying to gauge sort of runway left in your base.

I don't know off the top of my head I think we're probably at about 40% 40, 50% range of our customers, but keep in mind, there's there's different.

Modules attached to corporate banking and as we continue to build the product out and deepen the product set that is going to drive more that will drive more cross sell opportunities, but also more adoption opportunities. So you are seeing.

Many of our customers they still have their large.

Legacy corporate banking product it doesnt work on mobile phones or tablets or it's clunky.

As a clunky user experience and what they're doing is as we build out feature function. They are moving people from those legacy platforms to our platform. So we're driving more usage as well.

So theres still a lot of headroom on the corporate banking side within the base and also from a development perspective.

That's great and then with all the innovations you guys are rolling out sort of on top of the core when you're when you're targeting sort of net new customers.

How's that discussion go these days when when when customers think about where they are potentially funding things I imagine as you sort of are.

Have you ability to run on top of all the core processors.

Is that is that is that one of the drivers here of saying, hey, like let's let's take cost out of the core listen investing sort of.

Sort of functionality it you'd be provided at the top there is that sort of one of the value props that customers are talking about these days.

Yes, I mean, I think that that.

If you think about the energy that people are putting into the digital side of things you can't.

There's just not enough capacity to go put a bunch energy into deposit processing and if you just think about it logically bank of America Wells Chase and city when they sit in a room and Theyre talking about strategy moving forward. The core processors not driving that conversation. The digital banking team is whats driving where we're going and I think that's what's beginning to happen in our meetings.

The core processors have done an amazing job of driving the importance of that technology in it and it was truly innovative when it happened, but there's not a lot of innovation happening on it now and so what we're doing is driving a lot of dialogue around how to integrate with those products how to get the data out of there, but there's also.

A lot of other areas, where there's data that's coming in that were starting to.

Contribute to our platform as well so.

The digital banking conversation or digital lending is top of mind for folks and core processing.

I would say that they are trying to get.

Some of the cost out of that from there just not a lot of innovation happening there.

Sure. It makes a lot of sense well done guys.

Thanks, Matt.

Your next question comes from the line of Bob Napoli with William Blair.

Thank you Jeff.

I guess on the tier ones is are you.

Still landing with one product and expanding and how much of it is.

Replacing a product that is there a.

Versus a new product.

Being offered by the tier ones.

Well on the platform side of the tier ones.

The digital banking piece was this quarter.

We replaced legacy digital banking systems in all all three of those examples in some of those had corporate banking.

Some of those are corporate corporate banking attached to him as well so.

On the on the platform side were always replacing some type of legacy system and then you're also seeing as we talked about in the first quarter were beginning to see more and more interest from.

Our customers around starting digital banks are direct banks.

Which we had some success there we've had success there, we're having more and more of those conversations on the cloud lending side of the business.

We're replacing spreadsheets legacy systems.

Out there more more than probably than then.

It's it's additive to what their lending process is as opposed to replacing.

Kind of a system that does with the club lending does.

Great. Thank you and.

Bigger picture question, you guys, obviously raised a lot of money in.

The.

Just curious where you see the biggest opportunities to add to your platform is it Reg Tech in short Tech what are the areas of focus that you want.

Two.

Look to add to the platform.

And the ecosystem of Q2, if you would.

Yes, so keep in mind, we talk about the fundraise, we talked about investing in internal innovation, which we're going to continue to do and we have got a I think a solid track record around doing that.

And that would be on all the platforms, including integrating them together, so that they they talk to each other and they share data.

From a acquisition perspective, when you think about Jonathan on the corporate Dev team.

Theres clearly we're diving into vertical integration, so thinking about digital banking digital Onboarding digital lending and then the feature functions that go through that so that could be GRC like you referred to security or data or somewhere in the lending value chain around.

New assets are documents or pricing optimization and then there's also potential for horizontal expansion in the business. So that could be things like digital wealth digital insurance or capital markets.

But we are.

Out there looking at things and trying to find out what's what's a good fit and also we're trying to execute on what we've done in the past so.

We're active and we're looking at things, but we're going to be.

Prudent and diligent as we go through it.

Thank you, Matt Thanks to infer.

Thanks Frank.

Your next question comes from the line as Terry Tillman with Suntrust Robinson.

Hey, good morning, and congrats from me as well.

Maybe Matt. The first question just relates to Q2 open you've been at it for a couple of years now with the technology and now cloud lending a more recent development it sounds like though you're finding your putting nicely could you maybe compare and contrast, those two for us and investors as it relates to contributor to revenue growth and potentially upside over the next couple of years, how would you kind of stack rank them in comparison.

That's I try to say, which could you like the most.

I am really happy with the bank the Q2 open business and and the effort that that team has put together and having to reach out to different types of customers and prospects.

They really have done an amazing job of getting in with these fintechs and not just the fintex, but it may be private equity or people that are involved in that space and the referral base that we're getting and the execution that they're delivering with.

Some of these some of the biggest name fin techs in the business has been very impressive and so the upside there is.

Tremendous and I'm really excited about on the lending side.

The team to build the cloud lending product, we bought the right technology, we bought the right team when we bought the right culture that they have and it's a huge opportunity it's global in nature.

We're seeing nice wins in all of our geographies and.

Theres a little more work on the integrating the product to the platform side.

And then the bank then obviously the key to open stuff, but both of those represent tremendous opportunities and I'll pick them against each other to see which one can do the best but they're they're on very similar trajectory from a growth perspective.

I guess to be clear, though you do love all your children. So thats good math, thank you on that.

Yes.

Then Jennifer though for Jennifer for you in terms of I think it was like a $3.7 million.

Increase at the midpoint for full year guidance.

I guess like you know what goes into the increase in the guidance is it more on the digital banking side and just the timing of some of the rollouts or was it CLS or just.

Any one item that stood out on the increase in the full year got thank you.

The increase in the revenue expectations is really concerned about that.

The good execution, we've seen across all lines of the business, it's a combination of bookings execution across all tiers.

In all business lines.

Additionally, the delivery teams continue to execute and get customers live on the various platforms and the other factor that came into play is just the timing of those go lives within the quarter right. We had anticipated in our original guidance for the quarter that about 50% of the customer go lives that happened in the quarter what happened in June Thats, historically kind of how it played out.

But the team did a really good job and actually pulled forward such that 75% of the deals that went live this quarter happened at the end of April and by the Middle of May and so we got more revenue in the quarter from those deals than we would have anticipated.

Thanks, Terry Thanks.

Your next question comes from the line of Brad Berning with Craig Hallum.

Hey, good morning, guys again, congrats on the wins as well.

One a follow up on the innovation race.

And talk about the innovation gap that you have versus competitors across the business lines and also now as putting together as more of a platform.

How are you seeing that innovation gap race differentiating yourself versus competitors and how is that impacting the win loss ratio and where do you see attributes and the platform or product suite areas that are gaps for you versus the competitors.

And where where our priorities to close those gaps to further help the win.

Kind of loss ratios going forward.

Okay. That's.

That's a big question, let let let me let me try to frame I think what how we're viewing.

Our FINEX message or what our messaging is to the market which is essentially.

We are opening our platform up so that third parties can integrate to our systems so that.

Well, it's a bank and credit Union a fintech. They all have a different slant on what they are trying to do in the openness of the technology is critical and we are seeing.

Probably 15 to 20 developers from our customers coming to our office once a month to get trained up on our SDK or software development kit or.

So that they can begin to do innovation as they do that innovation that's unique to them.

That will drive more data into this data is a huge part of our strategy. How do we get this data so that the customers can understand who their customers are so they can provide better service deepen their relationships cross sell products and generate revenue ultimately.

And then lastly, as we innovate we are trying to move from this idea of your doing a transfer.

Or you're opening an account or you are paying a bill to what is the meaning of that experience, meaning that people are trying to.

Manage their cash flow so that they can run their life and knock it in debt or people are trying to.

The people as I heard this quarter from somebody that people don't want alone they want to house to raise their family and are they want alone to go build a small business and that's where we're trying to drive those experiences there were people that our customers are these financial entities.

Accomplish these things and they feel that the bank credit Union or Fintech helped them to do that and that will drive loyalty. So opening the system up using the data to gathering the data from opening the system up and then driving experiences that are lasting and meaningful that the customer associates with the brand, whether it's a bank and credit Union or a fintech is where we're going.

There's there's in a growth curve like we're in right now where people are signing up and using digital as we said last through 2 billion log ins.

You just.

It's there's so much to be done that I think keeping our focus on what helps our customers be competitive what helps them have some operating efficiency and also we look at around the corners to see what Amazon May do what is bank of America doing what is Facebook doing and are we thinking about technology that way. So there is a lot of investment opportunities for us, but we're also trying to make sure that we're we're thoughtful and we're we're not afraid to fail, but if we do we get out fast and figure out a new way to do it so hope that answers your question Brett.

That's a good insight and then the one follow up is.

When you talk to the tier ones tier twos that have been more in house. Historically speaking what is the pace of those willing to consider an outside vendor versus internal and how do you see about.

The penetration of tier one opportunities out there in the market that still have outsource opportunities.

We continue to hear.

Internal from from the larger entities that running your own development shop, having your own technology stack. They can they are trying to get it out of there.

Facilities as quickly as possible they still want some development resources, but the idea of running an entire development team to build a product soup to nuts is the people that are doing that are abandoning that as well. They are wanting developers to go right to products like our Q2 open product or our SDK on the platform side are using our lending product to drive whatever is unique to their business. So we're continuing to.

See more and more larger and larger customers get out of the development and technology management business and moved what their best out which is.

Deposit growth and loan growth.

Understood. Thank you very much.

Thanks, Brad.

Your next question comes from the line of Brett Huff with Stephens.

Hey, guys. This is Joel on for Brett Congrats on the quarter.

Thanks. So my first question just given the recent volatility in interest rates just curious if that has any impact on on what the banks net interest margin if you've seen any of that affect demand and if you could provide any color on that thank you.

Yeah. Thanks, Joe now I mean, they've been operating in this low interest rate environment for a while so the change last week, which was kind of par for the course for them what I would say is that.

That doesn't take away from their need to go drive a digital strategy it actually contributes to it and so as net interest margins go down. They net income goes down they can continue to but they need to continue to invest in ways to drive a more efficient way to get a deposit or generate alone and so we're right in the middle of that so this helps helps them I don't there is so much legacy technology out there that they have to replace that cost more to manage and administer and doesn't provide a meaningful user experience that.

This is kind of standard operating environment for the last 10 years. These customers and we're just trying to help them whatever we can to help drive revenue decreased cost.

Great and then my follow up would be just if you could kind of just differentiate the demand trends between the credit Union space and banks, how do they differentiate I imagine there is a lot of similarities there, but just any color would be helpful. Thank you.

Yes, I think in general.

Credit unions are little more retail focused and community banks are and.

So I think you're seeing the corporate banking is adopted almost the majority of our bank deals.

And on the credit Union side, it's a little more of a retail slant. Although I will tell you that we are doing very well in the credit Union side with our corporate banking offering both on a cross sell net new side.

And you're beginning to see credit Union.

Build a presence on in the business banking side of the world. So.

They are beginning to blend a little bit we see some banks as we talked about we had a tier $130 billion bank in the first quarter that started the launch is launching a direct bank. So.

You're beginning to see a blend on these things and they're all trying to get deposits to fund loans and if they have a bunch of loans any deposits fell, but so thats at the core of what they're all doing and we're just trying to sit in the middle of it and help them as much as possible.

Thank you again, congrats thanks Joel.

Your next question comes from the line of Peter Heckmann with D.A. Davidson and company.

Hi, This is alexis on for Keith.

Just a couple of modeling questions.

Could you provide to the GAAP and non-GAAP revenue for caused lending and growth separately.

We don't disclose that.

Okay. Thanks, and then could you clarify the tier one banks great quarter on signing by the way could you clarify if those were for the retail commercial order for the current solution.

But they were platform customers for digital banking they were.

A mix of retail and corporate banking.

Okay, great. Thanks.

One more on the general competitive space could you provide any thoughts on on NCR digital insight subsidiary buying Thethree do you think that that May result in a stronger competitor in the market of banks above 10 billion in assets.

I don't know, we'll have to see what happens with that we didnt, we didnt run into Detroit I think they I don't know, but I think that probably less than 10 customers. So we didn't run into them a lot.

And it will be interesting to see what would NCR does with that I mean, we have one system and it keeps us busy and now they have to so.

They've they've got.

As they put that together will tell you what happens in the market, but obviously, we haven't seen much out of it yet, but we'll be watching closely.

Okay perfect. Thank you.

Thanks, Larry.

Your next question comes from the line of Brian Peterson with Raymond James.

Hi, Thanks for taking the question and I'll Echo my congratulations on the strong bookings so Matt just very strong first half.

Anything that you can share in terms of kind of momentum through the pipeline and how you feel about your confidence that it's kind of the second half pipeline as we think about the rest of 2019.

Yes, I mean, I think that the that obviously we are.

Coming off of all of 18, and 19 and had a steady flow of whether it's tier ones tier twos tier threes. The team is executing at a very high level.

Our messaging around.

A single platform for retail small business corporate banking.

Adding lending onboarding to it is resonating very well, it's all backed up by the execution of our team delivering the software keeping customers happy as I said at the client conference.

The customers are excited about the innovation, but they don't want us to take our eyes off of infrastructure and support and those types of things which is.

Is it a growing company can be tough so.

As long as we continue to deliver innovation, but also keep our customers happy at the same time, I think you're going to continue to see the execution.

Into the back half of this year when I look at the pipeline, it's whether it's Q2 open cloud lending or digital banking, it's healthy we have.

A.

Deals that are they are down the path I think we borrowed a little bit from the tier one space in.

In Q2 from Q3, the team did a great job of pulling one of those deals in that probably is going to land in Q3. So we've got our work cut out for us in Q3, but in the back half of the year I think you'll see more more tier ones coming in.

And I think you'll continue to see us do well competitively against the market that's out there.

Thanks, Matt and it sounded like the corporate suite attach rates had really ramped up, particularly with new customers I'm. Just curious I don't know if there's a way to to bifurcate. This split but I wanted to know if your customers are seeing the need for that kind of in the early stages. So they come into the pipeline.

Looking for multiple products or is it maybe later stage, where they come in for one and then see the value of the whole portfolio.

And potentially or purchasing more products, particularly corporate suite.

Well on the on the on the banking side of the business. Our sales team leads with corporate single platform for all those things and I think a lot of people when we dive into the feature functionality. The platform I think a lot of them are are a lot of the prospects or are surprised by the depth of our functionality and also we show them. The road map, but we also build on our track record of delivering on that so on the banking side.

We're leading with corporate and retail is coming along on the on the credit Union side I think we've got a little more education there. So.

As they see it they start to think well this is an opportunity for us. So it may be that they buy the retail platform first.

And follow on quickly with a corporate banking opportunity.

Thanks, Matt.

Thanks, Brian appreciate it.

Your next question comes from the line of the Yanke tandem with Needham and company.

Hey, Good morning. This is actually Comped Peterson on for Mike Thanks for taking the questions.

Just wanted to start on 'em kind of any changes in kind of bank client spending or priorities.

Given the move down interest rates.

Are you seeing any more interest in maybe the CLS solutions now that maybe deposit pricing pressure might have lessened or is it just pretty stable steady as she goes.

Yes, it's stable and steady as it goes from from arc from from what our talk track has been for the last couple of years, which is they want more digital more automation.

Less need for human intervention and they want to have a single experience where customers whether its borrowing or opening an account or managing your cash they want to have a consistent experience across all the devices and a brent and something that attaches directly to their brand.

So so it's the demand environment is as good as it's ever been.

From from that perspective.

Great. Thanks, and then I guess, if I could just follow up on competition, specifically within the key to open.

Platform I know enhanced service has been.

Pretty hot lately has been a lot of competitors, especially that Saddam advertise kind of a full fledged offering.

Having a bank charter.

With it I'm, just one I want to see and get your thoughts on.

Kind of where you guys see the most success winning some of these key to open deals and kind of what you think kind of sets.

Your platform apart from maybe some of these other bass offers offerings and competitors.

Yes, I think that as we've talked about the breadth of our Q2 open offering is a cloud based core processing system with open a p. eyes that people can write to and what that and the technologist and these fin techs are these banks they can get into a sandbox within two weeks and begin writing whatever front end user interface. They want so after the write that user interface people then want to begin taking deposits and then we have a bank of record network, where these fintechs can partner with our existing customers to park deposits with them and participate in the interchange in the float which has a revenue generator for both our customers as well as for the bank customers as well as for the Fintech and then as we talked about on the call payment flexibility around do you want to use visa or another card network, we give the customers the ability to kind of go soup to nuts on these offerings and then we also have experience. We also have things we talked about like cloud lending, we have biller direct car swap which allows people.

Well to do Bill pay also to manage debit cards that.

Our issued or in car stolen and replace them. So the breadth of our offering and the flexibility in our offering.

It is highly differentiated and I think thats why you see or you're seeing our success with some of the top 10 techs in the world right now because it gives them optionality, but it also gives them one vendor to work with a lot of these other ones as a bank that's offering a car, but they don't have a deposit account.

There's not as much optionality around you. There's nothing you can do is lending they don't have anything around bill pay so so it's just.

The breadth of our product offering our track record of delivering has really differentiate us in the market I think you're going to continue to see us do that as we invest in this business.

All right. That's good color, thanks, guys nice quarter.

Thank you.

Your final question comes from the line of Arvind Ramnani with Keybanc.

Hi, Thanks, Thanks for squeezing me in.

Most of my questions have been answered, but just a couple of quick quick ones.

It is two mega mergers in the market, but if I, just if I sort of.

And would it be a first data.

Has it really impact that had any impact on the overall demand a competitive environment and given that they are focused on integration does that has that open up additional.

Additional opportunities for you guys.

Arvind I wish I could say is a bunch of people falling out, but it's the environment still good but I can't attribute the good environment to anything that Pfizer verify us is doing I mean, those guys are professional acquirers. They know what they're doing and we're going to stick to our game plan about driving digital experiences.

They get more and more into the payments business and they're very they're very good at that but what we do is is vastly different than what they do so.

The competitive environment, we continue to.

To win out there and we're focusing on what we are doing but keeping an eye on those guys as well.

Great and then.

Cloud lending arena.

It's been a year since acquisition you have taken taken kind of the combined offering to clients had a chance to integrated.

Okay.

Kind of just looking back at your.

How do you really feel it was acquisition and kind of longer term over the next would see is do you feel confident that it will not change our revenue growth trajectory.

So just keep in mind, we announced it in August of 2018, but we didnt close until October of 2000, and and 18 not that big of a deal but it has not been a year yet and there is a lot of work. There is a lot of integration. There's a lot of things that a lot of a lot of time has gone into that business.

As I said earlier, we made we bought the right people the right culture the right technology.

We're doing it the right way by trying to make sure that we don't I'll kick our coverage on some of the sales process, that's happening and haven't discipline around our asset classes that we're going after I think that.

It will be it will be a contributor to the growth of this business the margin improvement.

And profitability in the long run so very happy with that transaction and I think that it's going to require more investment and we've obviously made that clear over the last couple of quarters, but the opportunity is tremendous and were working.

Our investments are long term in nature, and they revolve around products people and infrastructure and it's no different with Cleveland and we're going to have to continue to do that but I'm.

Extremely positive on the power of a single platform for digital Onboarding digital banking and digital lending and I think our team is up to the task to create the most compelling platform out there for for digital transformation.

Very helpful. Thank you very much and good luck for rest of the year.

Thanks, Jonathan.

And this concludes today's Q2 holdings second quarter 2019 financial results. Thank you for your participation you may now disconnect.