Q2 Holdings, Inc. Q2 FY2024 earnings call

• Matt Flake started by sharing third quarter results, noting strong financial performance above guidance, including non-GAAP revenue growth, improved profitability, and achieving Rule of 30 on total revenue. • Broad-based booking success with 6 enterprise and Tier 1 deals, including 3 with top 50 U.S. banks. Strength in digital banking, relationship pricing, and Helix, with significant expansion and renewal activity. • Innovation studio bookings more than doubled in the first three quarters of 2024 compared to all of 2023, driving expansion and customer acquisition. • Transition of Jonathan Price to CFO, with appreciation for David's contributions over 4 years.

In the third quarter, Q2 Holdings generated non-GAAP revenue of $175 million, up 13% year-over-year. Subscription revenue was a key driver, up 18% year-over-year and comprising over 80% of total revenue. Adjusted EBITDA was $32.6 million (19% of revenue) and free cash flow was $35.1 million. Services and other revenues declined 11% year-over-year. Total annualized recurring revenue (ARR) grew to $796 million, with subscription ARR at $655 million, up 20% year-over-year. Ending backlog was over $2 billion, up $78 million sequentially and $467 million year-over-year.

• Q4 2024 non-GAAP revenue expected to be in the range of $178.1 million to $181.1 million, full year non-GAAP revenue $691.5 million to $694.5 million (11% YOY growth). • Full year 2024 subscription revenue growth expected at ~16%, exceeding initial projection of 13%, with 15% growth anticipated in 2025. • Q4 2024 adjusted EBITDA forecast $34.3 million to $36.3 million, full year 2024 adjusted EBITDA $122 million to $124 million.

• Forward-looking statements subject to significant risks and uncertainties, including those in periodic reports filed with the SEC. • Services segment headwinds due to discretionary spend from banks, with no control over bank spend dynamics. • Uncertainties around M&A activity and its impact on revenue lift, as well as the evolving competitive landscape.

Q: Dan Perlin asked about subscription ARR and backlog, specifically how deals are evolving and the holistic nature of signed deals.

A: Matt Flake responded that demand for deposits is strong, and deals with larger banks often lead to expansion with more products, with significant opportunity for expansion within existing customer bases.

Q: Cris Kennedy inquired about subscription revenue growth trajectory and key priorities going forward.

A: Jonathan Price said they're pleased with performance, with overachievement due to cross-sell and renewals, and key priorities include profitable growth, strengthening the balance sheet, and executing on opportunities.

Q: Bobby Dee asked about bank M&A environment and its impact on growth.

A: Matt Flake anticipated M&A picking up in 2025, with a backlog of deals, and Jonathan Price noted examining backlogged deals and the lag between deal announcement and revenue lift.

Q: Alex Sklar asked about macro pipeline and services efficiency.

A: Matt Flake expected a strong Q4, and Jonathan Price discussed focus on subscription mix, pricing/packaging renewals, and operational efficiency initiatives.

Q: Adam Hotchkiss inquired about innovation studio momentum.

A: Jonathan Price said momentum is primarily driven by existing customers taking on more products, with early days in adoption cycle.

Q: Dominick Gabriele asked about marketing efficiency and services breakdown.

A: Jonathan Price explained services and other revenue includes discretionary spend, and Matt Flake discussed sales force experience and building relationships with larger customers.

Q: Peter Karos asked about renewals and cross-sell trends.

A: Matt Flake attributed strong renewals to client conference timing, and Jonathan Price noted optimism about continuing cross-sell performance.

Q: Andrew Schmidt asked about gross margin and digital lending.

A: Jonathan Price discussed drivers of gross margin improvement and digital lending rebrand and go-to-market strategy