Q2 Holdings, Inc. Q3 FY2026 earnings call

• Leadership Structure: Jonathan Price was appointed Co-Chief Executive Officer alongside Matt Flake, with Price retaining his CFO role during a search for a successor. The company emphasizes long-term continuity and collective decision-making.
• Sales & Bookings: Strong bookings quarter led by digital banking, including seven Tier 1/Enterprise wins. Notable credit union deals included an approximately $3 billion win (largest recurring revenue deal) and an approximately $10 billion commercial digital banking platform selection. Existing customers expanded into risk/fraud capabilities, such as User Activity Monitoring (UAM).
• AI Strategy & Dev Days: AI focus remains on protecting institutions, banker efficiency, and developer speed. New previews for Q2 Code (expanding beyond code generation to full SDLC) and Q2 Assistant (multi-step task completion) were presented. UAM early adopter program engagement was double expectations (~20 institutions). General availability for key AI tools is targeted within 90 days.
• Operational Efficiency: Cloud migration benefits continue to drive gross margin expansion (non-GAAP gross margin 62.6%). Operating expenses were flat sequentially, offsetting lower sales/marketing costs post-conference with higher R&D investment.

Total revenue reached $225.8 million, representing 12% year-over-year growth and 3% sequential growth. Subscription-based revenues were the primary driver, growing 14% year-over-year to constitute 83% of total revenue. Non-subscription revenues grew approximately 3% year-over-year, largely due to timing in professional services. Adjusted EBITDA hit a record $67.8 million (30% margin), up 39% year-over-year. Free cash flow was $55 million.

• Full-Year 2026 Revenue: Raised to $888–$892 million (approx. 12% YoY growth).
• Full-Year 2026 Adjusted EBITDA: Raised to $253–$256 million (approx. 28.6% margin at midpoint, ~500 bps expansion).
• Subscription Growth: Full-year subscription revenue growth expectation raised to approx. 14.5% (from >14%).
• Non-Subscription Revenue: Expected to decline slightly in Q4 and be roughly flat for the full year.
• 2027 Outlook: Reiterated subscription revenue growth of 12.5%–13% and adjusted EBITDA margin expansion of 150–200 basis points.

• AI Monetization Uncertainty: Early adopter phase pricing and unit economics for AI products (like UAM) are not yet fully scaled; future GA margins depend on successful scaling and pricing models.
• Credit Union Market Evolution: While credit unions are growing opportunities, their shift into commercial banking requires complex platform capabilities that must be continuously updated to meet evolving needs.
• Capital Allocation Timing: Share repurchases are disciplined and flexible; leveraging debt for buybacks is considered only if valuation and strategic conditions align, preserving balance sheet capacity for M&A or organic investment.
• Fraud TAM Expansion: The Total Addressable Market for fraud is expanding due to increased surface area from AI agents and personal assistants, requiring continuous product evolution to capture value.

Q: Alex Sklar asked about client demand for AI personal agents and whether they unlock new opportunities in Tier 1/enterprise segments previously doing in-house development. / A: Matt Flake noted that flexibility to build quickly and iterate is a game-changer, with customer ideas flowing once they start working with Q2 Code. The company remains neutral on agent transacting capabilities, offering optionality to customers based on their specific risk appetites, while engagement with AI solutions continues to increase quarterly.

Q: Michael Infante asked about the confidence levels in the 12.5%-13% 2027 subscription ARR growth target, specifically regarding backlog conversion and cross-sell initiatives. / A: Jonathan Price expressed high confidence, citing strong Q3 subscription ARR growth of 13.5% YoY and prior quarters above 14%. He noted that while H2 2027 has tougher comparisons, the current pipeline and renewal health support the guidance, with Q4 execution expected to reaffirm this growth trajectory.

Q: Ella Smith asked what would catalyze faster share repurchases and whether the company would consider leverage given its debt-free status and $336M buyback capacity. / A: Jonathan Price stated the company prioritizes flexibility, balancing buybacks with organic investment and potential M&A. They prefer funding repurchases via free cash flow rather than leveraging, unless a compelling valuation opportunity arises. Current pace is disciplined, aiming to utilize the authorization over 12-24 months based on price performance and capital allocation needs.

Q: Bill Karkash asked how Q2’s deep core integration, security, and auditability protect its terminal value against AI advancements that might erode platform worth. / A: Jonathan Price argued that operationalizing AI goes far beyond code writing, involving decades of security, integration, and infrastructure investment. Customers are voting with their wallets by extending contract durations, demonstrating reliance on Q2 to navigate AI journeys safely, which protects the platform's central role despite broader AI trends.

Q: Parker Lane asked if the 2027 growth drivers will shift toward risk/fraud and relationship pricing relative to core digital banking, and if AI contributes significantly to near-term bookings. / A: Jonathan Price confirmed that AI contributions are not factored into the immediate 2027 guidance but expect mix shifts toward faster-growing areas like fraud. However, digital banking remains robust across retail and commercial sectors. Relationship pricing also shows meaningful pipeline opportunities, indicating broad-based growth drivers rather than reliance on a single segment.