Q2 Holdings, Inc. Q1 FY2025 earnings call

• First quarter results exceeded guidance, with revenue at $189.7M, up 15% YOY. - Signed a Tier 1 relationship pricing deal with a bank to improve commercial relationship profitability. - Saw strong expansion activity within existing customer base, including a top 50 U.S. bank expanding risk and fraud solutions. - Q2 Innovation Studio drove net new momentum and stronger relationships with existing customers, e.g., United Federal Credit Union. - Strong renewal activity, with 3 of top 10 largest customers renewed in Q1. - Revenue mix shifting towards higher-margin subscription-based revenues, with subscription ARR growing to $702M, up 14% YOY. - Adjusted EBITDA at record $40.7M, up 61% YOY.

In the first quarter, Q2 Holdings generated revenue of $189.7 million, up 15% year-over-year. Adjusted EBITDA was $40.7 million, representing 21.5% of revenue. Free cash flow was $37.8 million. Subscription-based revenues grew 18% year-over-year and 5% sequentially, making up 81% of total revenue. Total annualized recurring revenue (ARR) grew to $847 million, up 11% year-over-year. The ending backlog was approximately $2.3 billion, up 20% year-over-year. Gross margins were 57.9% for the first quarter. Total operating expenses were 40.7% of revenue, and adjusted EBITDA was a record $40.7 million.

• Forecast Q2 revenue in range of $191M-$195M. - Raised full year 2025 revenue to $776M-$783M, +11%-12% YOY. - Forecast Q2 adjusted EBITDA $41M-$44M. - Raised full year 2025 adjusted EBITDA to $170M-$175M. - Raised full year 2025 subscription revenue growth to at least 15.5%.

• Forward-looking statements subject to significant risks and uncertainties, including actual results differing from forward-looking statements. - Macroeconomic uncertainties could impact operating and financial performance. - Fraud management challenges due to increased digital product utilization.

Q: Congrats on the quarter. Matt, clearly, there at the end, you were talking about the traction you're seeing in fraud and how this is a big priority for your end market. I was just wondering if you could give us a sense of the relative level of penetration you're seeing there. And in some of the pipeline that you see, how often is fraud part of the evaluation that these customers are doing as part of the whole digital banking RFP?

A: Yes, Parker, it's both part of a net new deal. It's a differentiator for us, especially on the commercial opportunities. So you see it on the net new side. And obviously, we had some big expansion wins, especially at market with it. So I think it's broad-based. Obviously, we have a lot of customers that use the fraud products, but we've added additional products to the offerings that we have. So we have a lot of green space to go get after with the fraud products, and we're going to continue to innovate in that area, both with the products we're building as well as partnering with some of our partners like Alloy and other ones in our Innovation Studio. So a lot of opportunity there. And unfortunately, fraud has really picked up with the continued utilization of digital products, whether it's attacking the end user, the commercial customer or the bank.

Q: Matt or Jonathan, just in terms of the macro comments you made at the outset, I know you've got a high degree of visibility in the model for 2025, but did you incorporate any different potential macro assumptions into the raised outlook relative to the last quarter?

A: No, not from a macro perspective. Obviously, we have a lot of visibility into the '25 numbers. And with the benefit of Q1 behind us and the Q2 guide out there, there are some things that can happen throughout the year when it comes to cross-sell and renewal activity that can have an impact. But from a P&L perspective, we have a lot of confidence in the 2025 outlook. And we'll look towards 2026 based on the execution that we ultimately deliver here in '25. And then when it comes to bookings, that we'll see as the year goes on. And obviously, that will have the biggest impact on any changes relative to what we've already shared on 2026 P&L.