John McDonald - Chairman & CEO Timothy Mattox - President & COO Michael Hill - CFO

Bhavan Suri - William Blair Brian Peterson - Raymond James Rich Baldry - ROTH Capital Spencer Bogart - Needham & Company

Thank you, and good afternoon, and welcome to our Q2 2016 earnings call. I'm joined today Tim Mattox, our President and COO; and Mike Hill, our CFO.

So on today's call, I'm going to summarize our results and some recent highlights. Following that Mike Hill is going to provide a more detailed look at the Q2 numbers, and also share with you our guidance for the third quarter and the full year 2016.

And then finally Tim will cover sales and operations highlights from the second quarter. After that, we'll open it up for questions.

Before we get started, Mike would you please read the Safe Harbor statement.

Thank you, Jack, and good afternoon, everyone. The press release announcing our quarterly results and our business outlook, as well as a reconciliation of management's use of non-GAAP financial measures as compared to the most comparable GAAP measures is available on the Investor Relations section of our website at investor.uplandsoftware.com.

During today's call we may include statements that are considered forward-looking within the meanings of securities laws. In addition, we may make additional forward-looking statements in response to your questions.

These statements are subject to certain risks, assumptions and uncertainties that could cause our actual results to differ materially. We caution you to consider risk factors and other uncertainties that could cause actual results to differ materially from those in the forward-looking statements contained in the press release and in this conference call.

A detailed discussion of such risks and uncertainties are contained in our Annual Report on Form 10-K filed with the SEC. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland management as of today August 11, 2016.

We do not intend to undertake any duty to release publicly any updates or revisions to any forward-looking statements, whether as a result of new information, future events or otherwise. On this call, Upland will refer to non-GAAP measures that when used in combination with GAAP results provide Upland management with additional analytical tools to understand its operations.

Upland has provided reconciliations of non-GAAP to the most comparable GAAP measures in our press release announcing our second quarter 2016 results. To learn more about our outreach plans, please feel free to contact us at [email protected].

And with that, I'll turn the call back over to Jack.

Thanks, Mike. I would say three major headlines for this conference call; first, strong Q2 results; second, our EBITDA ramp which we've been talking about for some time is nicely underway; and third, our M&A strength continues.

On the Q2 results, we reported record adjusted EBITDA margins at 15% and on the revenue side, recurring revenues, we had 16% growth; we have now met or exceeded guidance in every one of the eight quarters that we've reported since going public. Again, on the EBITDA ramp, our guidance for Q3 shows not only 16% growth in subscription support revenues but another big jump in adjusted EBITDA at the midpoint taking our adjusted EBITDA margins to 18%.

So we are delivering on this quarterly progression of higher EBITDA that we've talked about frankly, are ahead of where we had talked about. And on the M&A front, in addition to the activity we had in Q4 and Q1, we completed another small acquisition in Q2 that expanded our workflow automation product family.

So post those acquisitions and the other work we've done over the past year to shed lower margin revenue, we've now got a business that's got high margin, recurring revenues representing 87% of our revenue in Q2. So it makes our business both, more predictable and more profitable.

So as we talked about in 2016, our focus is on growing high margin recurring revenue, dramatically expanding EBITDA margins and building scale end-market presence through tuck-in acquisition. So it's a simple strategy, it leverage our operating platform and our M&A capabilities to drive growth and cash flow, growth and EBITDA which we believe will be the real value creator for Upland and which will be the key financial metric that we focus on in measuring our progress.

So with that, I'm going to turn the call over to Mike who is going to give you a more detailed look at the Q2 numbers and share with you our guidance. Mike?

Thanks, Jack. Today I'll cover the financial results for the second quarter and our outlook for the third quarter and full year 2016.

Total revenue for the second quarter was $18.6 million, growing 5% from the year ago period. Recurring revenues from subscription and support grew 16% year-over-year to $16.2 million.

Professional services revenue was $1.9 million for the quarter, a 33% year-over-year decline. Perpetual license revenue was $0.5 million for the second quarter or decline of 46% year-over-year.

As planned professional services and perpetual license revenue have become a smaller portion of our overall revenue mix with recurring revenues now representing 87% of total revenue in Q2. Moving down the P&L to gross margins; overall gross margin was 64% during the second quarter and our product gross margin remained strong at 66% or 73% when adding back depreciation of equipment, amortization of acquired intangible assets.

Professional services gross margin was 42% during the second quarter which was a nice outperformance relative to our normal target of 30%. Turning to our operating expenses, research and development expense, net of refundable Canadian tax credits was $3.9 million for the second quarter representing 21% of total revenue.

Sales and marketing expense was $3.0 million representing 16% of total revenue for the second quarter. General and administrative expense was $4.5 million in the second quarter representing 24% of revenue.

But excluding non-cash stock compensation for the second quarter G&A expense was $3.7 million or 20% of total revenue. Acquisition-related expenses were $1.4 million in the second quarter which were driven by a recent acquisition activity.

Operating loss was $2.5 million in the second quarter compared to a loss of $2.5 million for the same period in 2015. GAAP net loss was $3.6 million or a loss of $0.22 per diluted share compared to a GAAP net loss of $3.3 million or a loss of $0.22 per diluted share in the second quarter of 2015.

Non-GAAP net income was $1.0 million or non-GAAP net income of $0.06 per diluted share in the second quarter of 2016 compared to non-GAAP net loss of $0.5 million or non-GAAP net loss of $0.03 per diluted share in the second quarter of 2015. Our second quarter 2016 adjusted EBITDA was $2.8 million, up 267% compared to $0.8 million for the same period last year.

Now on to our balance sheet and statement of cash flows; we ended the second quarter with $18.2 million in cash. Cash flows used in operating activities were $1.4 million for the trailing 12 months ended June 30, 2016.

In the second quarter we used $3.7 million of cash for acquisitions to expand our business. Now I'll cover Q3 and full year 2016 guidance.

For the quarter ending September 30, 2016, we expect reported total revenue to be in the range of $17.7 million to $18.7 million including subscription and support revenue in the range of $15.9 million to $16.7 million. I would like to note that this would represent growth in recurring revenue of 16% at the midpoint over the quarter ended September 30, 2015.

Adjusted EBITDA is expected to be in the range of $2.9 million to $3.5 million for an adjusted EBITDA margin of 18% at the midpoint representing growth of 173% at the midpoint over the quarter ended September 30, 2015. Full year ending December 31, 2016, we expect reported total revenue to be in the range of $71.6 million to $73.6 million including subscription and support revenue in the range of $63.0 million to $65.0 million for growth in recurring revenue of 12% at the midpoint overall the year ended December 31, 2015.

Adjusted EBITDA is expected to be in the range of $10.9 million to $12.3 million for an adjusted EBITDA margin of 16% at the midpoint representing growth of 172% at the midpoint over the year ended December 31, 2015. And with that I'll turn the call over to Timothy Mattox, our President and COO.

Thanks, Mike and good afternoon, everyone. I'm going to cover our sales, product and operating areas.

The Q2 results continue to show that our enterprise customers are achieving even greater success and improved outcomes by relying on the Upland family of products. We continue to demonstrate, both new and existing customers why our products are the choice for those who require exceptional technology and service.

On the sales front, we continue to focus our efforts on expanding our customer relationships with existing customers, building on our improved net promoter score. We expanded relationships with 139 existing customers including 13 major expansions, those are expansions at or above $25,000 in annual recurring revenue.

Further 29% of our expanding customers increased their annual recurring revenue by 25% or more with Upland. Examples of major renewals and expansions where a large partner recommitting to our work for automation offerings for over $100,000 per year.

A large U.S. government agency expanded by over 40% to over $200,000 per year with our project and portfolio management offering, a large non-profit expanded by over 40% to over $370,000 per year for our mobile messaging offering.

And finally, a large UK manufacturing company expanded by 23% to over $360,000 per year with our project and portfolio management offering. Ten other key customers expanded to the tune of a combined $410,000 in annual recurring revenue as well.

We also acquired 80 new customers of which four were major accounts by leveraging references from our customer base. Some examples of the major customers we acquired include a large food and beverage company who committed to over $140,000 per year to our project and portfolio management offering, and a global energy company who committed to over $100,000 per year to our supply chain management offering, part of our workflow family of products.

On the product front, we continue to focus on customer driven innovation and delivering consistent reliable service through a strong technical foundation. In Q2 these investments in our technical foundation resulted in an improved performance reliability and security.

Q2 also included major product releases with customer-driven productivity enhancing features. Within our project and IT management applications, we improved our program management capability, workflow automation and usability.

We enhanced the usability of our project and portfolio management application by improving the end-user interface and data management capabilities. Our IT financial management application improved performance and usability by developing a unified platform integrating new features and greater ease of use.

Within our workflow automation family of applications, we improved our analytical and automated e-signature capabilities and launched a supply chain management module delivering new features to address specific business process needs to the manufacturing industry. For our digital engagement applications, we enhance the underlying product platform of our webcontent management application improving security and system stability.

We also enhanced the work space environment to provide improved usability of the product. For application to person text messaging platform, we enhanced our integration keep abilities and improved performance.

With respect to our operating platform we've launched a series of initiatives designed to accelerate the improvement in efficiency effectiveness and scalability of all major aspects of our operating platform. I look forward to covering progress in these initiatives in upcoming quarters and expect them to contribute to improved financial performance as Jack alluded to in his coming.

In summary, we have a lot of high impact initiatives underway that are yielding results, and overtime we believe will enable us to scale the business more effectively. With that, I'll turn the call back over to Jack.

Thanks, Tim. At this time we are ready to open the call up for Q&A.

Hey guys, can you hear me okay?

Yes.

Great, congratulations. Obviously, nice job and just all the numbers are around but really just on the expansion.

So maybe just starting off -- and this is for Jack, and certainly interesting but Jack maybe when you talk about the expansions you had said you want to focus on that -- starting the 139 accounts sounds, great; maybe talk about if I was to average that out what that net dollar expansion rate could have looked like just to get some sense of what the sort of growth you're seeing expansions on average could be -- it would be great to get some more color on that.

Sure. Tim, do you want to take that one?

Absolutely. Bhavan, we look at a few things with respect to existing customers, one is obviously the -- what we call the gross renewal rate.

So the number of customers that churn relative to stay with us then, we look at expanding those customers that do stay with us and track that pretty closely. What we're seeing is as we reach out to customers typically around renewal time is that -- that's the time they assess the value that we're delivering to their businesses and provides us the opportunity to sell more users into the same usage model or expand how the products are being used within a given customer.

And so we're getting more programmatic about that, we're seeing a greater uptick in terms of the number of customers who are expanding the relationship. And then as I alluded to you before with net promoter score improving, receiving better retention of the customer base itself, all of those things provide operating leverage because securing new revenue or existing revenue from our current customer base is actually the most efficient way for us to grow the company.

So that answer your question?

It does, that was helpful Tim, thanks for the color. And then maybe again, back to you Jack before I jump over to Mike for a second.

You guys talked a lot about sort of the splash and support in the upsell opportunity with platinum supports. Just sort of -- the pricing, the product saw performance under the traction you've seen with that.

I mean it's early I know, but it would just be great to get some color on initial uptake.

Yes, I think it's too early to really give any meaningful feedback on that where we're very optimistic about the prospects of core programming, it's the new -- our partners very successfully -- so it's a proven program. The numbers that we've provided and as we look forward to the strong guidance in Q3 and beyond and growth of EBITDA, they don't even reflect the positive impact of platinum support, so that would really be icing on the cake above where we are now but as I say, I think it's too early to provide any feedback on that.

Maybe Jack took a different way, what are we trying to say that given when we are '16, relatively -- could be some nice upside but really this is going to be part of the growth story in margins for '17 as it's fair to sort of think it through -- think through that way. And then maybe just as a follow-up to Mike, you've done a nice job sort of expanding on the gross margin line.

Sort of where do we think we could see those go -- not again guidance for '17 sort of longer term? Thanks.

So I do think that by that support program we'll have a great impact on the business going forward. Again, we talked about the fact that -- a few quarters back we talked about a goal of 20% EBITDA margin in Q4 and here we are at 18% midpoint of range in Q3 and we've taken a long-term goal of 30%.

So we're very optimistic about our ability to scale cash flow and EBITDA of this business. We've put a lot of work into tuning our operating platform and fully integrating the 10-plus acquisitions we've done to-date, we feel very good about it.

The pipelines growing, so of acquisition opportunities -- I'm very optimistic about a strong finish to two 2016. And then really seeing 2017 as a year where we increase our acquisition size a little bit and really start putting some more points on the board.

On the gross margin side, we have seen nice improvement there and I think we're going to continue to See that to the tune of a few hundred basis points here over the next few quarters, but let me let Mike give you a little bit more kind of detailed color on that.

Yes, I would reiterate that same point Jack that -- I think on the last earnings call, I had indicated that we had hoped and expected to see 300 to 400 basis point increase in margins during the course of 2016, we've already seen a big improvement here just going from Q1 to Q2 but yes seeing another couple hundred basis point improvement in gross margins for the remainder, throughout the remainder of the year, is what we'd like to do as well. So just to reiterate that -- on into 2017, we get into some of our operational plans as we've talked about in terms of our hosting and how we consolidate data centers and potentially look at other hosted solutions.

And so we'll have to see but I think the general trend is going to be up and gross margins improving here as we go.

That's really helpful guys, appreciate it. Thanks for taking the questions and congrats on the execution.

Thanks, Bhavan.

Thanks, guys and I'll echo my congrats on the quarter. So question for Jack or Tim; could you talk about what your respective product families may be generating the healthiest growth either with new customers or upsell?

And where do we think we are in terms of that opportunity with some of your recent acquisitions?

Sure. Jack, I'll jump in and take that.

We've got three main focus areas. Brian as we've talked about and if you look at the project in IT management area, we're certainly seeing good expansion there and a good loyalty of the existing base.

We do have some products there that are also acquiring new customers in there. So a bit of a mix within that particular family.

In the workflow automation area where we did the most recent acquisition of API, we are seeing both expansion with existing customers and new customer growth in that space. And then finally in the digital engagement area where we have our web content management offering that's more of an expansion focus on the existing base and then in our application to person text messaging business we're seeing both new customer acquisition as well as expansion there.

So it's kind of a mix in each of the product families and we're not shoehorning or pigeonholing either any of those families into one particular area but we certainly prioritize first the existing customer base and making sure we're doing everything we can to expand and retain them first and then move into the analysis of does it make sense to focus on a new customer acquisition.

And it really just comes down to a question of where we're seeing opportunity and you know we've got north of 1,500 customers, 500 major accounts for 2,000 companies that where we just see a really compelling opportunity and so our view is that is the area where it's most cost efficient to deliver value and increase sales so that's why we're focused on.

Got it understood. If I were to follow up on that a bit.

If you look at your existing customer base. If we were to think about the penetration you have whether that be to expand with -- more modules etcetera, not talking about cross sales, but with your current products with the current customers.

What level of penetration do you think you have currently and maybe where do you think that could go over time.

I think it’s certainly will go penetration today, I think there's a lot of white space run to be expanded to I don't have an exact kind of quantitative analysis on it but my gut on that is we're talking about 10% penetration and so the opportunity to grow substantially a huge, and the reason for that is the nature of cloud and the ability to quickly procure it, on a departmental or on a regional basis and then as you are established you have an opportunity to expand and that's then consistent with what we've seen historically; where average sales price for us from recurring revenue standpoint has been something in the $20,000, $30,000 or $40,000 range but average revenue per account has been the in the $80,000, $90,000 a $100,000 range of the difference is expansion once we’re in the door, so that sort of traveling kind of opportunity that those numbers reflect is I think at least as a minimum point as to what the potential additional expansion opportunity is. so we feel very good about it and we know we just need to execute against it and I'm very pleased with the results this quarter 16% growth in recurring revenue was the same time we've been able to dramatically expand EBITDA margins.

I really feel like the efforts that we've been making in terms of a focus on costumer success, the focus on the installed base. Tim was mentioned really focused product roadmaps that address the issues that our existing customers care about and that they're willing to.

Invested you know that the efforts are the investments we've made in customer support the improvements that we've seen and our satisfaction rate among customers. I really think these efforts are starting to bear fruit here and the team is just incredibly excited about what the prospects are going to be for this business over the next two three quarters not only operationally but the revenue particularly the EBITDA margin expansion opportunities that I represent.

Good, well, keep up the good work gentleman I’ll hump back in the queue.

Thank you.

Thanks. So two questions I want to what do you know to kind of what extent your sales when you win a deal as far as kind of new budget authorizations, and what extent is probably extinguishing a legacy product and you've delivered in a lower TCO [Ph] it's kind of the ratio.

I suspect it's more towards the latter and then the second thing because we're seeing in this at least conversations with private companies. it feels like expectations in terms of valuations have started to kind of approach normalcy are common Not bad but I was just curious what your perspective is when you're talking to everyone who's now on X-unicorn.

Thanks.

Thanks for the term Richard. So Tim you take the first one and I’ll take the second one.

Sure Rich or really good question there. It depends a bit on the product itself.

For example our application the person text messaging offering, we're finding that a lot of companies aren’t fully explored in the text messaging and so that becomes a new budget allocations we prove the ROI we the expansion relative to that, that's not displacing anything legacy and If you consider the old ways someone was reaching their customers through their spam mail or something like that, a replacement. We do see that cloud of though is the preferred way of doing business for as Jack alluded to put companies that want to turn up and turn down capacity without burdening their internal teams.

So we are seen now legacy applications that might be running on legacy hardware in their own data centers now, the desire to get rid of all those costs around that and the people that are delivering that internal service and allow an expert like an Upland to come in and do that in a scalable fashion. We certainly can provide a greater degree of reliability in performance and ability to turn up and down users that this is just inherent to cloud.

So a little bit depended on the product but some of the core applications States’ like Project an I.T. management certainly is a good example or web content management where cloud just makes total sense is the operating model for not just medium sized businesses, there's even larger ones.

And on the second question. On the second question Richard yes.

There's been you know a creeping Rationality that's been coming back into the market and that's great news for us, at the same time our confidence in our ability to quickly optimize acquired businesses to generate strong operating results and strong operating margins is increasing. You know mention the fact that the investments we made in our operating platform starting to bear fruit and we see that in their overall results.

Well you know that also increases our confidence that we can quickly optimize operations of the choir businesses, and those two things together I think are going to be a potent mix for us as we were going to 2017, because prices are coming down and we can afford to step up and pay a little bit more, Based on the kind of returns we can get from the acquired businesses. so that's why I believe we'll be able to grow our deal side I think we'll get you know a couple more some deals on the smaller side on this year but I think it's really 2017 when we look to start getting some larger deals done, so we can start making that march toward hundred million of revenue.

Great thank you very much, good color.

Thanks. The services cost side came down pretty significantly in the quarter and the revenues held pretty steady though.

If you talk about there's a new normal level we should think about is there anything unusual in that line that we should keep us for remodeling.

Yes, Jack let me take that -- So the P.S.O. revenue we had a really good sort of outperforming quarter for P.S.O.

revenue in Q2. Probably don't expect going forward revenue to be quite this good.

It's on the other hand the cost side has come down, we've made some changes to get more utilization and more efficiency out of our teams our P.S.O. teams.

So I think the cost is going to stay relatively consistent, it'll be obviously we're trying to deliver as much as we can, on the top line but cost relatively consistent, top line probably going to need to be a little bit more conservatively forecast as you can tell from our guidance. You know here going forward for Q3, so that helps a lot of little bit of color on the PSO side of the house.

That's what's going on.

Thanks. It looks like a major account wins went from five in Q1 to 13 this quarter, can 7ou talk about why that is, will that number be a little bits to try to own just because of that the number still a small number, or is there something that's kind of developing within the sales force that should be kept for stepping in its new levels and consistently moving higher.

Richard just to clarify its Tim here. in terms of new customer acquisition we had about the same amount as we had last quarter, we have four new major account wins where we saw improve performance with our focus with existing customers, and therefore some larger expansions with those customers and that's where you get the 13 number there.

So we're going to continue to focus on that installed base and run those expansion plays that we're doing, and really focus on up sells like the platinum support offering that Jack alluded to, we think that will help with the expansion size over time. A little bit too early to tell in terms of what the results will be but just to clarify the numbers that you were referring to.

Great, thanks for that clarification. When I think about your balance to EBITDA growth, which is now coming in well ahead of trend versus how much you allocate to organic growth, you’ve now achieved a level of profitability in line or better than most of your peers.

But you have had an acquisition sort of centric growth focused which one can argue that it should continue to push the EBITDA. So how much do you think about you driving that to higher levels than maybe even your short term models would have expected to see the acquisition engine versus an ability sort of discretionarily to push more of that into your sales and marketing science to push on the organic growth engine?

Thanks.

That’s such a great question, Richard. I think when we look at it, getting that 30% is critical on EBITDA margin.

What we have found on the organic growth side is -- again, organic growth can come both from new logos and from expansion within existing accounts. Is that some of the changes that we’ve made over the past year are driving organic growth opportunities within our existing accounts, but just doing it at a much lower cost so that we’re able to have both an opportunity to grow organically and EBITDA margin expansion.

And so we don’t view it as much as an either/or choice today. Now, could there come a point a couple of years down the road where we feel like we’ve exhausted that expansion opportunity, and then you begin to balance one versus the other, yes.

But right now, our view is do what we’re doing to optimize our operating platform. Part of that is our sales and marketing focus around expansion within existing accounts, serving those existing customers well, making them happy, we’re delivering high value for every dollar spent.

That’s ultimately what this is about. That’s what drives our ability to expand within those accounts.

That is the same motion and the same effort that’s driving the higher adjusted EBITDA performance. So we are continuing on that path.

Thanks. And congrats on a great quarter.

Hey guys, I want to follow on that last question just a little bit more. So obviously you’ve gotten a nice boost to EBITDA and as you prudently shifted your revenue mix to recurring revenue, but with those numbers kind of reaching 90%, you’re kind of getting close to somewhat kind of maxing out that mix.

So what other levers are you thinking about for EBITDA growth? I mean, you mentioned kind of the focus on expansion sales and where else are you looking?

That’s a great question. So Mike mentioned early just for the remainder of this year, next few quarters, right, a couple hundred basis points off of activity and on the gross margin side, then it’s a move into 2017 additional benefits from there.

And just let me step back for a second and put this into context, right? Midpoint of guidance for Q3 shows 18% adjusted EBITDA margins.

We’ve talked publicly about a target of 30% adjusted EBITDA margin, long term charging scale. So if we look at the past from here to there, I think ultimately we see again a 400 basis point opportunity in cost of goods, again with half of that roughly occurring this year.

We have invested a significant amount to date on the R&D side, around A-line platform and our source code management and development platform, and outsourcing capabilities there, and we still have 300, 400, 500 basis points of additional cost savings that can come out of that segment of the business. So those two areas alone can get us a long way from the 18% midpoint next quarter through to the mid to high 20s.

In addition to that it's the business scales, we get fixed cost operating leverage and you look at taking this business for $75 million to $100 million, you could see 400 to 500 basis points there. So those are just a few of the areas, there are others around; sales and marketing and account management and customer support or efficiency initiatives, ongoing at all of those areas.

And again, it's more than just a cost cutting exercise, it's about building value at the core. So that each new acquisition we make can quickly be ported over to our systems around development, around customer support, around product management, around cloud operations so that we can increase the quality of service we're providing the customers to drive more expansion sales and yes, make more money because we're running a more efficient, more scaled operating platform.

So hopefully that gives you some color as to where we think the savings will come from, they're very much identified, it's something we spend a lot of our time on and now it's -- and again, the process is underway and we will continue to execute against that, you'll see that reflected in our results over the next few quarters and beyond.

That's really helpful. And then I mean I know -- obviously you guys are more focused on kind of expansion over kind of the cross-sell opportunity with the exception of when there happens to be the same decision maker there.

And so I'm wondering kind of to what extent do API and some of the other recently acquired companies and products have the same decision makers as some of your existing more legacy products?

Sure I'm happy to take that Jack. Spencer, API is a perfect fit in that regard in the sense that our file bound workflow automation product, that has a set of resellers that sell that product, it has tremendous capabilities and actually look to rationalize roadmaps between API and file down, it's going to help us in terms of delivering more functionality to those API customers in future versions of file down.

So essentially file down becomes a superset of functionality for those current API customers and providing them a platform and a path for additional functionality that can drive even more value to those businesses. So in the sort of classic sense of the word tuck-in, that's a great example of one where we can focus on really one product is the future for both customer bases and deliver more value to both customers as a result of that.

If you look at another example of the hip cricket assets that we acquired, that has a lot of commonality with respect to our mobile common platform there. So we're looking at a convergence of roadmaps, again with the mobile commons platform being a superset of functionality for those hip cricket customers, and we'll be able to run that combined business much more efficiently and rationalize the underlying platform and technology as a result.

So to the degree we can do acquisitions like that to become accretive much more quickly and we can drive customer benefits much more rapidly. Now that said, we are building an operating platform that we can buy unrelated assets and still bring a lot of value out of them.

But first priority is that if we can get a related business we can get those synergies much more quickly.

That's really helpful. And then just one last one for me; I'm wondering to what extent are or aren't further acquisitions for 2016 kind of included in your full year guidance?

Spencer, this is Mike. So we're not including acquisitions in our guidance numbers.

Great, thanks again. Congratulations for the quarter.

Thank you.

Sorry, I was on mute there for a minute. Again, thank you very much for your time this afternoon and again, very pleased with the quarter and a strong result and the strong outlook for Q3 and a remainder of the year.

And I look forward to seeing you again on the next quarterly earnings call. So, thank you very much and good afternoon.