Good morning, my name is Jacqueline, and I will be your conference operator today. At this time, I would like to welcome, everyone, to the Q2 Holdings 4Q 2017 and Full Year Results Conference Call. [Operator Instructions]. Bob Gujavarty, Vice President of Investor Relations. You may begin your conference.

Good morning. Welcome to the Q2 Holdings Conference Call for the Fourth Quarter and Year-Ended December 31, 2017. 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 will be attending the Raymond James' Institutional Investor Conference in Orlando and the Morgan Stanley TMT 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 actual results to differ from the results implied by these or other forward-looking statements. Also, these statements are based solely on present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. For additional information, please refer to our filings with the Securities and Exchange Commission and the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward-looking statements. During this call, we will be referring to both GAAP and non-GAAP financial measures. We believe that non-GAAP measures are representative of how we internally measure the business, and they are reconciled to GAAP in the tables attached to our press release, which is available on the Investor Services portion of our Website. The non-revenue financial measures we will discuss today are non-GAAP unless we state the measure as a GAAP number. Any non-GAAP outlook we provide has not been reconciled to the comparable GAAP outlook because, among other things, we cannot reliably estimate our future stock-based compensation expense, which is dependent on our future stock price. Since we expect our future stock-based compensations expense to have a significant impact on our future GAAP financial results, reconciliation is not available on a forward-looking basis without unreasonable effort. Now let me turn the call over to Matt Flake.

Thanks, Bob, and thanks to all of you for joining us on our fourth quarter 2017 earnings call. Today, I'll share some financial and business highlights from the fourth quarter and full year 2017. I'll then turn the call over to Jennifer, to provide a more detailed look at our 2017 financial results as well as guidance for the first quarter and full year 2018. We ended the year with a strong fourth quarter, generating revenue of $51.7 million, up 23% year-over-year. Revenue for the full year was $194 million, up 29% year-over-year. We also added approximately 400,000 users in the quarter, ending the year with 10.4 million users on our platform, a 21% increase year-over-year. I'd like to kick off today's call by discussing our sales performance from the quarter. The fourth quarter was a record for highest bookings dollars in the single quarter. Our net new performance was largely powered by a particularly strong quarter from our bank team. Throughout 2017, I commented on the belief that an improving economic environment would accelerate our sales execution in the bank space. And when you look at our bank team's execution in the fourth quarter, I feel confident in saying, banks are in a better purchasing position than they were this time a year ago. We added a record 4 Tier 1 banks in the fourth quarter, the largest of which is a $30 billion bank headquartered in the Northeast. This bank has a strong commercial focus and had initiated an evaluation for a commercial solution that would help them win new business in a highly competitive market. In the midst of their evaluation, the bank completed the acquisition of a Q2 platform customer. A positive reference from the customer elevated Q2's corporate product suite in the evaluation and the…

Thanks, Matt. We are pleased to have delivered another quarter of solid revenue execution combined with continued improvements in adjusted EBITDA and our second consecutive quarter of non-GAAP operating income, which resulted in positive non-GAAP operating income for the full year 2017 of approximately $400,000. I'll review our fourth quarter and full year results before finishing with guidance for the first quarter and full year of 2018. Total revenue for the fourth quarter was $51.7 million, an increase of 23% year-over-year and up 3% from the previous quarter. Revenue for the full year 2017 was $194 million, up 29% year-over-year. The sequential growth was principally the result of growth in subscription revenue as services revenue was down slightly in the quarter. Transaction-based revenue represented 16% of revenue in the fourth quarter and full year 2017, consistent with the third quarter of 2017 and down slightly from 17% in both the fourth quarter and full year of 2016. The largest component of our transaction revenue is bill pay services, which we resell. Bill pay revenue growth slowed to approximately 11% year-over-year in 2017, below our expectations. And our 2018 revenue guidance implied the further deceleration of bill-pay revenue in the current year. Our revenue churn for the full year 2017 was 4.9%, down slightly from 5.1% in 2016. Approximately 180 basis points of the churn was driven by M&A activity, therefore controllable churn was 3.1%. Looking ahead, we expect churn to remain at or below 5% in 2018. As we have communicated previously, increased M&A activity negatively impacted our net customer count. We ended the year with 382 Q2 platform customers, down slightly from 385 at the end of 2016. Our trailing 12-month revenue retention rate for 2017 was 122%, consistent with prior years. As a reminder, this metric compares revenue…

Thanks, Jennifer. In closing, we entered 2018 with excellent momentum, having signed 7 Tier 1s in the last 120 days of 2017. I expect 2018 to be another year of solid revenue growth combined with improving profitability, exciting product initiatives and industry-leading customer service. With that, thank you for joining us today, and I'll hand it over to the operator for questions.

[Operator Instructions]. Your first question comes from Todd Roderick with Stifel.

So if I go back and look at last quarter's conference call and all the things have transpired since then, I think, at the time, Jennifer, you had said, sort of, 23% to 25% for growth this year feels like a pretty good number and if I fast-forward to today and look at the new bookings environment, seems like there was nothing, but positive surprises for you on that front, particularly for Tier 1 win. So it seems like everything from a new bookings perspective came out ahead or well ahead of your expectations. So I guess, my question is, if you could just comment -- both of you could comment a little bit upon what you saw in terms of whether it's churn or a reduction in bill pay expectations that's keeping you a little bit more cautious for perhaps the first part of the year to guide to 21% to 22%? That would be helpful, because it seems like a little bit of a disconnect. And then the second part of that question is just, as you get through this first half pause or air pocket, how do you think about what the growth rate looks like exiting 2018 and back into 2019 longer term? Do you see this returning to a 30% type of growth story?

Yes, Tom. So there is a few different factors leading me to provide a bit more conservatism in my 2018 revenue guide. First, as Matt mentioned, we signed 4 Tier 1 deals. Most of them the last few days of the quarter and we signed 7 in the last 120 days of the year. So several of them are still in the very early stages of implementation, planning and slotting and with the typical 1 year implementation timeframe and the Q4 holidays, I would expect that many of those would push into the early part of 2019. So I expect a lot of that bookings over achievement to really contribute to 2019 revenue growth rather than 2018. And then as I mentioned in my prepared remarks, we saw a significant slowing in the year-over-year growth for the bill-pay revenue this year. And so we built in some additional conservatism on the growth rate for bill pay into next year's guide at this point until we can see an improvement or bounce back there. And then lastly, I would also comment that EY is currently working through all of the work that they're doing to look at our adoption of ASC 606 and the impact that it's going to have. Our initial assessment is that it's going to be less than 1% of revenue, but EY still needs to go through that and make sure that they concur. I would add that any change from 606 I would expect to be positive and pull revenue forward versus pushing revenue out, given the nature of our contracts and the escalating payments in those contracts. And then finally, I would note that I feel better about this year's guidance than I did about last year's, because I had to make more assumptions last year with the slowdown that we were experiencing in bookings and the Open question we had at to when the tailwinds might pick up. But I feel much more confident this year given the strong bookings performance that we had in the back half of '17 and the visibility that we have into the pipeline. And so for 2019 growth, the second part of your question, that's really -- a lot of that is driven by what is the mix and the timing of the bookings in the first half of this year. So what I can tell you at this point is I expect the low-end of revenue growth for 2019 to be no less than 20% year-over-year growth and how high that can go is really driven by the execution in the first half of this year. So I can give you more light on what the high-end might look like midyear.

Perfect. Very helpful. Matt, kind of turning back to your comments on not just the bookings and the Tier 1 wins you landed in the fourth quarter, but you seem pretty optimistic about the pipeline and the deal activity environment for 2018. Can you just talk a little bit more about what you're seeing from your discussions with big purchase decision makers relative to tax reform, purchasing environment? How they're thinking about their budgets? I mean, it seems like we're starting to hear more and more about not just a big Q4 budget flush, but increased IT budget for '18 driven by some of these factors. Love to hear a little bit more about what you're hearing first-hand out in the field?

The activity in the first quarter just already has been more than I've seen quite a bit. And I think, our first quarter will be better than seasonal based on what we've seen, the first and the third are always kind of a lower -- the slower quarters, but a lot of activity in Q1 coming off with a strong Q4. So usually, you empty your barrels and you're, kind of, worried about the next quarter. So there's a lot of good activity out there right now. The tax reform stuff, you look at the -- our customer stocks, they're up -- they're trading up right now. What I'm seeing is a little bit more urgency out of them. I think, they get the digital up and so that's driving more decision-making for us, and we're just really well positioned with the breath of our platform right now from retail to small business, to corporate, to Q2 SMART products, the fraud analytics stuff, we continue to drive innovation into the product and then also match that with record uptime and great support. We're going to continue to see deals -- continue to win deals.

Your next question comes from Sterling Auty from JP Morgan.

So talking about the timing of the go-live, you mentioned the 7 big deals signed in the last 120 days, do you have enough implementation resources given the way you're staffed currently? Or how should we think about the timing or spreading out of the go-live given the concentration of deals you've signed? A - Jennifer Harris 8 I think what surprises us a little bit was just the sheared number of Tier 1 that signed in such a short time frame and so that is going to require us to add some additional capacity to meet the kind of go-live and implementation time frames that those banks would like. So it's going to drive us to hire to meet the needs of that concurrent capacity. So I think you will see gross margins a bit depressed in the first half of the year before improving in the back half of the year as we ramp-up some additional implementation capacity to handle these concurrent ones.

Is there any opportunity to engage with some systematic graders to push some of that workload and pressure to a third party?

Yes, Sterling, we've talked about that in the past. We've seen systems integrated to some extent on the larger deals and that's mostly helping the financial institution with the project -- the project management side of it, but the market, in general, is still committed to, "We buy it from you, you install it." So that's the -- that's this kind of the market that we live and as far as with this product. So I don't -- I see systems integrators come into the play a little bit, but they're not going to have a meaningful impact in '18 or '19.

Yes, I just also comment on while I said it would depress gross margins in the first half of the year, I do expect the annual gross margin to still be a year-over-year improvement, and I would expect that it's probably somewhere above the 60 basis points that we posted this year, but likely not much more than 100.

Got you. And then last one, the 11% that you mentioned on bill pay, was that percent of revenue or year-over-year growth?

That was the year-over-year growth. They -- the last 3 years, they've historically been at about a 20% year-over-year growth rate and this year, they dropped down to 11% year-over-year growth.

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

Congrats on the strong bookings this quarter. So I wanted to segment this a little bit from maybe retail and non-retail. It sounds like the non-retail's having a much bigger portion of the Tier 1 deals, maybe, versus 1 year or 2 ago, but can you talk about the -- how the implementation of that business trends versus retail. So I know in retail, historically, you've seen new users come on over the course of, may be, 1 year or two, but how does that look for corporate, treasury, analytics, et cetera? Is there any way you can get into that?

Yes. There is a couple of different domain impacts that -- so on the corporate side, usually on the larger deals, it's going to fall on to the year, maybe, a little longer than that, because you're moving the crown jewels of the bank. On their process, it takes a lot more time. There's a lot more heavy lifting as far as there's more data to move if you think about payroll, any receivables or anything, you've got to move that. You have to be really cautious with that. So the timing isn't about a year time frame from the corporate side of things, but if you think about our Q2 SMART product, I'm really happy with the performance that we've got more than 40 customers in the ground and in production running close to 20% of the total users through the system. So that comes on a lot faster, and then, we talked a little bit about Q2 Open. Q2 Open is something that we can turn on quite a bit faster, margins will be higher, sales cycle are about the same at this point, but -- so they're all a little bit different, Brian, but the corporate stuff is going to come in at about the same time as -- on the Tier 1 as it takes to do a retail Tier 1 delivery.

Got it. Just maybe on the clarifying on the bill pay, I appreciate the moving parts there, but is there anything, specifically that changed in the fourth quarter that made you guys more conservative on that in 2018?

I think it's just the unknown to us, right? Bill pay, we resell and it's hard for us to encourage banks to promote higher adoption, because bill pay to them is not a strategic part of their business. It's a cost center and it's not a revenue generating activity on the retail side. And so I think, we're just being a bit more conservative assuming that we see the same kind of growth.

Your next question comes from Brian Essex from Morgan Stanley.

It's Thomas Robb, on for Brian Essex. Good job on signing all the Tier 1 banks the past year. If we kind of, like, take a step back and think about that 1 year implementation timeline, what deals do we kind of have to look forward to on kind of coming live in the next few quarters? For your top line? And is there any kind of seasonality outside of Q1 that you've provided that we should be watching out for on those deals?

So given the all seven of those deals were signed in the last 120 days, I don't think you're going to see much go-live in the next couple of quarters. I think, as I mentioned on the call, we're still in the early phases of the slotting for some of these because they just signed. And so we're still determining whether they're going to go live in phases or whether they're going to go live in a big bang. There is an opportunity that a handful of those might elect to follow a phase rollout approach and so we might get a portion of the revenue starting a bit earlier, say, midyear, but it's a little bit early to tell still. And yes, all of the Tier 1s that have been signed in previous years are now live so it's these seven that were signed in the last 120 that are in the pipeline.

And as far as seasonality, Thomas, I mean, generally, we talk about Q1 and Q3 are the slower quarters, historically, and like I said earlier, I'm feeling good about having a better than seasonal quarter for Q1, and we'll see how Q3 plays out.

Great. And then any way to break out, kind of, thinking about -- on the revenue side again, growth from either -- breaking out between new users, new products and maybe cross-selling existing customers' new products?

Yes. So I think if you look at our trailing 12-month revenue retention, historically, we've been at a 122%. I would expect that, that number is going to actually come down a bit in 2018 given that we didn't have a lot of Tier 1s to be implemented during '17. And so if you look at why '17 stayed at the 122%, remember that we had 2 of our largest Tier 1 customers go-live at the end of '16 and so they had a full year of revenue in their 2017 number. So if you exclude those 2 largest Tier 1s from the '17 calculation, our trailing 12-month revenue retention this year would have been about 112% and I expect that will be roughly the same for next year. So that now we expect the remainder of that growth to come from the net new users.

Your next question comes from Peter Heckmann from Davidson.

Could you clarify for 2017, the mix of commercial or corporate versus retail? It sounds like the -- this was fourth quarter, you had some really good success on the commercial side, but just trying to think about the mix between those 2 products?

I don't think if I could break that out for you, Jennifer -- on this call, because you've got to remember there's -- the Tier 1s, I think, 3 of them were just corporate, but I think, some of -- but there's other Tier -- and some of the other Tier 1s, they are retail and corporate. So I couldn't break it out completely that way, Pete, but I think, three of the Tier 1s were corporate only and then a couple of them were retail and then there was a mix. But broadly across the base where we had a lot of cross-sell -- a lot of corporate cross-sell to existing customers and then a lot of the Tier 2 banks and credit unions. We had some corporate wins that were both add-ons to existing products and then net new wins as well.

I would point out that corporate this year was probably in the low to mid-single digit millions from a revenue contribution perspective, but I expect that in 2019, that the corporate will grow at north of 30% year-over-year. So it's still off of a small base, but it's growing faster than the rest of the business.

Okay. That's great. And then in terms of pricing or competition in the marketplace, do you find that some of the competition has upgraded their capabilities and/or do you find the core processors looking to use bundling as a tool to either retain or compete?

Yes. I mean, they've always used bundling as a tool to compete. We've had to compete with that for the last 20 years and then -- yes, I mean, they're working hard to build new products and to roll out new stuff and we're doing the same. I just feel like our singular focus on digital banking, the platform that we have allows us to innovate on a single stack rather than having to innovate on retail, small business, corporate, fraud analytics products with different developers all over the world. So I think, we inherently have a competitive advantage in how we can roll out technology. I think you see that in the marketplace the way we win the deals on the strategic banks out there. So we're just continuing to compete and there's no change in the landscape, Pete, you know as well as anybody, it's us, Pfizer, Jack Henry, FIS and then sometimes there's some pure players on certain products, but in general, that's who we're competing against all the time. And I always tell people the great proxy for how you're doing the 7 Tier 1 wins in 120 days, because everybody shows up at those Tier 1s, everybody gets a nap at and win that many in the last 120 days is -- we're really pleased with and impressed and we're also not done. There's a nice pipeline out ahead of us.

That's great. And then if I could just follow-up with one more on the transactional or the bill pay. Would a P2P transfer that was originated at the bank included in your transactional number? Or could we be seeing in addition to more banks going direct with the bill pay providers, maybe a portion of that payment stream shifting away from bill pay and maybe towards either bank originated or third-party originated P2P?

Yes. I would say that P2P would be part of transactional revenue and you are seeing some of that. And keep in mind, we're picking up some of that with our P2P solution, but in general cord cutting, you're getting a lot of people that are paying cable bills, you're consolidating now with AT&T and DIRECTV to 1 payment. Anytime you do a refinance on your mortgage, Wells Fargo or whoever puts a lot of incentives for you to make that payment direct, Netflix, Amazon, a lot of those payments are going direct. It used to have bills setup to him and so we're trying to do things to combat that, our Biller Direct product, our CardSwap product that we've rolled out through Q2 Open, our doing things to help our customers generate revenue off of these things as well as allow their customers to pay them, but you just have -- you have new portals signing up for bill pay, they are not just paying as many bills and they're paying them through bill payment, they're paying them in different ways. So it's -- that's more of what it is.

Your next question comes from Joseph Vafi from Loop Capital.

I was wondering if we could just focus a little on Tier 2 and Tier 3 banks. How you executed in the quarter there on signings and with the strong traction with the Tier 1, was there a shift in strategy and sales resources towards larger banks moving forward versus what we're seeing over the last couple of years and then, maybe, I have a follow-up.

I'll take the second one first. There is no shift in strategy. I mean, ever since -- we signed our first Tier 1 in May of 2013 and then we signed about 20 more -- 20-plus since the time we went public in March of '14. So no change in strategy. We're still winning a lot of Tier 2, Tier 3 deals, banks, credit unions. We're winning the right ones too. I think if you look at -- we're seeing a lot of our banks continuing to make acquisitions. So no change in strategy there and then the Tier 2 banks in particular, and I would call those $500 million to about $5 billion. That is -- there's a lot of activity we've had in coming through here all January. It's been probably the most active January I have seen in a long time and a lot of those are Tier 2 banks. And then also credit unions, credit unions are doing really well for us. They've been steady Eddie. So we're going to continue to execute in that space as well, but no change in sales strategy.

Okay. And I may have missed this, but I know that M&A was a little bit of a headwind here in the fourth quarter and perhaps in the first quarter. You have an outlook on M&A headwind/tailwind to the user base and to the install base as we look at this point in 2018?

Yes. I mean, I think, M&A -- it's hard to predict what's going to happen. I think, we'll probably see consistent to what we saw last year. The thing that I'll tell you is that we still have our churn number under 5% for '18 as well. So there's going to continue to be M&A activity out there and I would anticipate it being, kind of, like it was in '17.

Your next question comes from Terry Tillman from SunTrust.

I wanted to follow up actually on the original set of questions from Todd Roderick. Jennifer, for you first, in terms of -- I know you don't want to get into like multiyear guidance, but now we're talking a little bit about 2019, so you kind of opened it up or we kind of opened it up or Todd did, I should say. This [indiscernible] like 25% growth or so in 2019, you said, look, low execution risk at least 20%. I'm assuming you're just throwing out there something that for us to feel comfortable, worst-case scenario or otherwise, is there something highly conservative in terms of new business conversions in '18 or even slower bill pay that would relate to you saying nothing is lower than 20%?

I think it's really just setting that floor of what we think the worst-case scenario is. Right? I think it's a little premature right now not having EY completely through the testing of our 606 implementation and how that can impact revenue go forward to give anymore guidance that's specific than that.

And as it relates to ASC 606 or any other accounting treatments, we've seen from other companies, I mean, there's multiple effects, sometimes there's some revenue impact, sometimes there's impact on expenses related to sales commissions, but if there were to be any kind of impact on revenue, could you walk through where -- what that dynamic would be?

Yes. So it's a couple of different things. If you remember, we have price escalators, annual price increases in our contracts. Under the old rules, we recognize that increased revenue each year as we build the higher rates. The new rules will require us to actually average the revenue that we think we're going to get over the entire contract term and recognize that straight-line so that should pull some timing of revenue forward. The other thing is the Centrix acquisition. Centrix had a number of their customers who while it was still a term-based license, they took it on premise, not in the data center. And so we had recognized it on a subscription basis since it was a term-based license. Under the new rules, it will be viewed as a license agreement even though it's term based, because they're not in our data center. So after we deliver that license to them to install on prim, we have no future performance obligation. So that will pull some revenue forward on the Centrix side as well. And then from an expense perspective, we do expect some changes there where we had just capitalized commission expense for the direct sales folks before where we can now layer in and capitalize the management overlay on that as well, so all the commission expense related to a deal. But we also, if you remember from the past, we've told you that we paid 50% of our commission when the deal is sold and 50% when the customer actually go live -- goes live and because there's so much time between contract execution and go-live, that's considered now under the new rules more of a retention payment. So that second piece will be expensed. So we're still working through what the net extent of capitalizing more, but expensing the second payment will be.

That's a lot of good color. It sounds like you'll be kind of busy over the next few months. I guess, my final question is for you Matt, I like to ask about some of the newer innovations. In the past, I've asked about Q2 SMART. Could you talk about Q2 Open in terms of whether it's these small microfinance or kind of nontraditional financial service institutions that you're signing, like Acorns? Or potentially could this also be a calling card or a wedge to get into the larger Tier 1s that you have historically not gone after, because they can pick and choose what they want to use out of your API?

Terry, yes, I mean, I think, it's -- for us, it's obviously expanded the TAM when you look at the last three quarters we've announced, the Qapital, the savings app, we announced Chime bank and then Acorns this quarter. And there's -- we're also -- this product is also being implemented in larger financial institutions like you referenced that we're having some talk -- some dialogue with the top 100 with utilizing this -- the APIs in order to turn up a product really quick. Also, there's some larger fintechs out there and there is also brands that want to go use this technology. So it's opening up the market for us. I'm going to continue to give you guys updates every quarter on progress we are making. But we think it represents a significant opportunity, but there's a lot of work to be done on it.

Your next question comes from the line of Mayank Tandon from Needham & Company.

Matt, I just wanted to drill into the corporate side a little bit more given you have incumbents that have been around for a while like Bottomline and ACI. I just wanted to see what is driving the success that you are having in the corporate world against these incumbents and other potential players, what is the reason for the competitive takeaway that I imagine in the corporate area?

Yes, Mayank, I think, ultimately, user experience, look and feel and then the robust feature functionality set that we have, we've talked for a while that the names you mentioned, they've got great products and they've been building on them for 20-plus years and so. It's kind of a new entrant into the space. We had to do something different. We decided to start with being able to use -- thinking about corporate from a mobile perspective, design and look and feel and so that requires doing that on new and modern technology. I think, those guys are trying to transition to that, but it's tough, it's taken us a lot of time and a lot of money to do that. So look and feel plus we have been really patient. We've signed some big deals, gotten them into the ground, it's been rough, but our customers have worked very tightly with us to get the product up and running and now we have -- they're referenceable, they're helping us sell more deals. And so that's why I think you're, kind of, seeing this momentum occur. We're going to continue to compete with those point solution guys on the corporate side, but based on, what we've seen in the last 120 days, we feel really good about our competitive position and we're continuing to invest in it as well. Keep in mind, we've got about 17% going into R&D in 2018, and we think that's going to continue to extend the lead force.

Got it. And so just to be clear, Matt, are these competitive takeaways or are you replacing in-house custom-built solutions and launching your own software into these opportunities?

All the ones that we talked about in this quarter could -- are competitive takeaways and not just competitive takeaways, but all -- all the other players who are in the game trying to win the business as well. So we don't take many -- there's not many custom corporate solutions -- homegrown corporate solutions that -- not there right now. So it's usually -- you're almost always taking it away from one of the competitors.

Right. And just 1 final question for Jennifer. Jennifer given the revenue targets that you laid out for fiscal '19, how should we think about the margin ramp going forward beyond '18?

I am sorry, the what ramp?

The margins. The EBITDA margins?

Yes. I think, I commented in response to Sterling's question, may be, that I think, you're going to see depressed margins in the first half of 2018, because we are going to have to add some capacity to handle the 7 concurrent Tier 1 implementations. And then you'll see improvement in the back half of the year and then if you look at it on a full year year-over-year basis, I would expect that will do something better than the 60 basis points year-over-year that we provided this year, but probably not much more than 100 basis points, because of the Tier 1 implementations.

Sorry, Jennifer, I meant the '19 number, you said 20% worst-case revenue, so just based on that type of scenario, where can margins go in '19, potentially, given the investments you have to make and deleverage in the model?

No. I think, it's a little early to tell, because it's the mix of the deals that are signed that really drives that, but we're very committed to year-over-year improvement. So I would expect to still see a year-over-year annual improvement about the same range.

And your last question comes from Arvind Ramnani from KeyBanc.

Most of my questions have been asked, but just wanted to ask you about your Tier one wins, congratulations on the wins. Now that you have over 20 Tier 1s, do you have critical mass and refereranceable clients to take this to 30% or 35%? And, kind of, is the priority going to be focused on getting these clients up and going? Or basically, kind of, expanding footprint at these clients versus going and signing up new clients?

So, yes, I mean, we are -- I think we're up to -- I think, we have more than 30 financial institutions that are greater than $10 billion in assets. So you don't get that without having a referenceable customer. So we're very pleased with that, the quality we've had and then the wins and using them as referenceable. As far as -- we'll have multiple focus right? We've got to get the new ones live and we want to go in and expand our footprint in the ones that have the products that are up and running and finding whether if they're not running corporate, maybe, they want to use corporate, if they're not using SMART, we'll go cross-sell SMART to them. So Arvind, it's kind of a mix of -- we want to sell the net news, deliver them and then go cross-sell the products into the existing customers that don't have anything.

Okay. Does it change anything from a sales strategy or operational strategy? You referenced, kind of, using systems integrators, sort of -- there doesn't seem to be a huge appetite -- people still want you guys to focus, but longer term, if you look over the next couple of years, is there going to be a shift in strategy?

I think, as we continue to -- as our customers are getting bigger through acquisition and asset, so I mean, I think systems integrators are going to come into play. I'm just -- I just want to be cautious with setting expectations. I think you guys go from -- you have system integrators, so your margins are in the 80%. I'm just trying to bridge the gap and we'll have some systems integrators. It's just going to take time and there's a certain customer base that will use them. You are not going to see $2 billion or $3 billion banks and credit unions paying for systems integrators anytime soon. And then -- but you -- with things like Q2 Open, we are talking with systems integrators to deliver. We're also delivering products like SMART that are in the cloud, they turn on rapidly. So there will be a lot of ways for us to deliver these products, but I just want to be cautious, but yes, there could be some systems integrators in play, but I don't want to make the leap that that's all of a sudden going to change the margin profile overnight.

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