Q2 Holdings, Inc. Q4 FY2024 earnings call

• Delivered Q4 results above high end of guidance, with non-GAAP revenue $183M, up 13% YOY and 5% QoQ. - Adjusted EBITDA $37.6M, 20.6% of non-GAAP revenue, up ~630 basis points from prior year. - Record bookings quarter in Q4, best renewal quarter, signed 25 total Tier 1 and enterprise deals (most ever in a year). - Subscription-based revenues grew 16% full year, representing 79% of total revenue. - Ending backlog over $2.2B, up 9% QoQ and 21% YOY. - Trailing 12-month total net revenue retention rate 109%, subscription net revenue retention rate ~114%. - Adjusted EBITDA $125.3M full year, up 63% YOY. - Added Andre Mintz to Board of Directors, effective March 1.

In the fourth quarter, non-GAAP revenue was $183 million, up 13% year-over-year and 5% sequentially. Full year non-GAAP revenue was $696.5 million, up 11% from the prior year. Subscription-based revenues were 79% of full year revenue. Total annualized recurring revenue (ARR) grew to $824 million, up 12% year-over-year. Subscription ARR was $682 million, up 15% year-over-year. Ending backlog of over $2.2 billion increased by $189 million sequentially (9%) and $387 million year-over-year (21%). Trailing 12-month total net revenue retention rate for 2024 was 109%, with subscription net revenue retention rate at ~114%. Revenue churn for 2024 was 4.4%, improved from 6.1% in 2023. Gross margins were 57.4% in Q4 and 56% for the full year. Adjusted EBITDA was $37.6 million in Q4 and $125.3 million for the full year.

• First quarter revenue guidance: $184M-$188M; full year 2025 revenue guidance: $772M-$779M (11%-12% YOY growth). - First quarter adjusted EBITDA guidance: $36M-$39M; full year 2025 adjusted EBITDA guidance: $165M-$170M (21%-22% of revenue). - Updated 3-year financial framework: average annual subscription revenue growth lifted to ~15%, adjusted EBITDA margin expansion to ~360 basis points, free cash flow conversion target >85% by 2026.

• Factors that could cause actual results to differ from forward-looking statements, including market uncertainties, competitive pressures, and expectations for future sales, operating, and financial performance. - Risks related to the financial services industry and execution of forward-looking statements.

Q: How do deregulation and bank IT spend priorities in 2025 impact your strategy?

A: Matthew Flake said deregulation could provide tailwinds by allowing operating efficiency and fewer regulatory burdens, helping banks with M&A and deposit acquisition. Hopeful lending environment pickup would lead to more operating accounts and demand for competitive commercial products.

Q: Barrier to cross-selling commercial and confidence in continuing.

A: Matthew Flake noted 58% of Fortune 100 most profitable banks and 42% of top 200 Forbes credit unions use their platform. Banks look to other banks for success examples. Confidence comes from experience with conversions, ability to compete, and positive word-of-mouth from existing customers.

Q: Free cash flow, CapEx spend, capital allocation, and product road map.

A: Jonathan Price said free cash flow conversion is strong due to DSO performance and profitability. No change in CapEx plans, focus on organic investment in fraud, Innovation Studio, fabric, commercial functionality, and relationship pricing. Inorganic opportunities possible if strategic and financial sense. Professional services expected to remain down due to no rebound in discretionary spending seen yet.

Q: Renewal bookings growth 80%. Attribution of growth between incremental cross-sell, attach price, contract duration extension.

A: Jonathan Price said strong 2024 subs growth was due to pull-in of out-of-scope renewals and cross-sell performance. Not assuming significant out-of-scope renewals every year, but hope to maintain pricing discipline and customer success to drive growth. Drivers include renewal pull-in and pricing discipline.

Q: Terminal pricing structure in digital banking, shift to asset-based vs seat.

A: Jonathan Price clarified digital banking is user-based pricing, different from seat-based. M&A in the market is a tailwind as it accrues more customers under a single logo. Negotiations around combined user counts post-M&A impact economics.

Q: Pricing and competition for new deals vs renewals, pricing power.

A: Matthew Flake said ASPs slightly down due to mix, more pricing pressure on retail. Get premium for products, long game approach. Deals competitive, but sales and success teams do well in value capture due to platform value (better user experience, operating efficiency, data value).

Q: Year-over-year margin improvement breakdown.

A: Jonathan Price said revenue mix shift to subscription benefits gross and EBITDA margins. OpEx leverage and cost of sales contribute, with revenue mix shift being key. 2025-2026 dynamics differ with cloud migration impact on gross margin.

Q: Helix and embedded finance under new administration.

A: Jonathan Price said fintech market shift to banks controlling BaaS programs, making Helix a differentiated product. Kirk Coleman noted regulatory challenges highlighted strengths, good for long run.

Q: Innovation Studio bookings doubling YOY, breakdown.

A: Jonathan Price said Innovation Studio bookings doubling is a high-margin revenue stream, impactful for new wins, with over 400 of 450 live digital banking customers using it in some form.

Q: Backlog absolute dollar increases, drivers.

A: Jonathan Price said Q4 backlog increase driven by seasonally strongest renewals quarter, renewals in scope and out-of-scope renewals. Size of deals also a driver, but renewals are biggest driver in any one period.