Q2 Holdings, Inc. Q3 FY2025 earnings call

• The third quarter showcased strong financial results with revenue and adjusted EBITDA exceeding guidance. Revenue was $202 million, up 15% year-over-year, and adjusted EBITDA was $49 million with a 24.2% margin. • The third quarter was the best in company history from a bookings perspective, with 7 total Tier 1 and enterprise deals. • In the digital banking space, there were successes upmarket, including a net new win with a bank over $80 billion in assets and an expansion with a $60 billion bank. • Fraud solutions signed the largest deal in company history. • The quarter featured the strongest relationship pricing quarter with multiyear renewals from top 10 U.S. banks. • Dev Days 2025 highlighted AI offerings such as an AI Copilot, AI-assisted coding, and more. • Hima Mukkamala was appointed Chief Operating Officer, and Kirk Coleman was positioned as Chief Business Officer, with a transition plan for Mike Volanoski.

In the third quarter, Q2 Holdings achieved a revenue of $202 million, marking a 15% year-over-year growth. Adjusted EBITDA stood at $49 million, with a margin of 24.2%. Subscription-based revenues grew 18% year-over-year and 4% sequentially, accounting for 82% of total revenue. Total annualized recurring revenue (ARR) reached $888 million, up 12% year-over-year from the prior year. The ending backlog was approximately $2.5 billion, increasing by 7% sequentially and 24% year-over-year. The digital banking segment saw success with net new wins and expansions, fraud solutions gained traction with a large deal, and all three major product lines contributed to the quarter's performance.

• For the fourth quarter, revenue is forecasted to be in the range of $202.4 million to $206.4 million. Full-year 2025 revenue is raised to the range of $789 million to $793 million, representing a 13%-14% year-over-year growth. • Fourth quarter adjusted EBITDA is forecasted to be $47.2 million to $50.2 million. Full-year 2025 adjusted EBITDA guidance is raised to $182.5 million to $185.5 million, which is 23% of revenue. • 2026 outlook includes an expected full-year subscription revenue growth of approximately 13.5%, non-subscription revenue decline in the mid-single digits, gross margins at least 60%, adjusted EBITDA margin expansion of approximately 250 basis points, and full-year free cash flow conversion of at least 90%.

• Actual results may materially differ from forward-looking statements due to factors in SEC periodic reports, including those related to the financial services industry's operating and financial performance. • Risks associated with the evolution of technology and financial services that could impact expectations.

Q: Congrats on the quarter. Matt, some changes on the management team that you outlined here. Maybe just talk about why now is the right time to make some of these changes to the structure of that organization? And what you expect the biggest changes we'll see in the near term are under the new leadership here?

A: Yes. Thanks, Parker. For us, it's -- yes, you guys live quarter-by-quarter. We didn't just do this overnight. We've been trying to structure the business in a way to align the technical resources where our delivery support, the people that build the product and host the product are aligned because so much of that is connected to the engineering team. And so Hima is a proven commodity for us. We've been really impressed with him. Kirk hired him as a big advocate for him. And then putting Kirk in a position to do go-to-market and the product side of things, where he has deep experience. He's been a buyer. He's been a seller. He's been on our side as well. So it's just a perfect fit at this time, and we wanted to get it done before the end of the year, so we could put our plans together for '26 and beyond. So it's -- coming off a strong quarter just happened to be what happened. But really excited about these changes, and I think they put us in a position to really accelerate our products, our go-to-market as well as our initiatives around AI. And I'm sorry, what was the other part of the question?

Q: I think you touched on most of it there, Matt. Maybe just to pick up on AI, you highlighted some of the new development from the Dev Days. Obviously, AI is a huge focus area for every industry. But just wondering, if you look at year-end markets, what sort of appetite there is there, and more importantly, budget there is around AI? How much of a prioritization is this in your end markets? And what are you expecting the timeline to be there for contributions and benefits to your deal cycles as a result of it?

A: Yes. Keep in mind, we've been using AI for fraud and cross-selling and products like that for a while. Our buyers were the most conservative business people in the country, arguably in the world. And so they are leaning in and learning. We're having a lot of conversations around it. We're trying to understand the problems they want to solve from a product's perspective. And so that's how you educate yourself and build the right products. The Dev Days, obviously, there's a lot of activity there. So encouraged by their engagement with us, and we think there's a lot of opportunity there. When it folds into the revenue and the cost side of things, I'm not in a position to share that at this point, but we definitely think there's going to be a lot of opportunity there on both of those lines.