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Core Insights - Q2 Holdings (QTWO) reported revenue of $201.7 million for Q3 2025, marking a year-over-year increase of 15.3% and exceeding the Zacks Consensus Estimate of $197.46 million by 2.15% [1] - The company achieved an EPS of $0.57, up from $0.28 a year ago, surpassing the consensus EPS estimate of $0.55 by 3.64% [1] Revenue Breakdown - Subscription revenue reached $165.22 million, slightly above the average estimate of $162.33 million from four analysts [4] - Services and other revenue totaled $18.6 million, compared to the estimated $18.57 million [4] - Transactional revenue was reported at $17.89 million, exceeding the average estimate of $16.64 million [4] Stock Performance - Over the past month, shares of Q2 Holdings have declined by 6%, while the Zacks S&P 500 composite increased by 1% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Core Insights - Q2 Holdings reported quarterly earnings of $0.57 per share, exceeding the Zacks Consensus Estimate of $0.55 per share, and showing a significant increase from $0.28 per share a year ago, resulting in an earnings surprise of +3.64% [1][2] - The company achieved revenues of $201.7 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 2.15% and up from $175.02 million year-over-year [2] - Q2 Holdings has outperformed consensus revenue estimates four times over the last four quarters, although it has underperformed the market with a 39.9% decline in share price since the beginning of the year compared to the S&P 500's gain of 15.1% [2][3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.57 on revenues of $203.1 million, and for the current fiscal year, it is $2.21 on revenues of $785.44 million [7] - The estimate revisions trend for Q2 Holdings was unfavorable prior to the earnings release, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] Industry Context - The Internet - Software industry, to which Q2 Holdings belongs, is currently ranked in the top 34% of over 250 Zacks industries, suggesting that stocks in the top 50% of Zacks-ranked industries tend to outperform those in the bottom 50% by more than 2 to 1 [8]

Financial Data and Key Metrics Changes - Revenue for Q3 2025 was $202 million, representing a 15% year-over-year growth and exceeding guidance [5][16] - Adjusted EBITDA was $49 million, with a margin of 24.2%, marking a significant increase from the previous year [5][20] - Free cash flow generated in the quarter was $37 million, with cash, cash equivalents, and investments totaling $569 million at the end of the quarter [21][22] Business Line Data and Key Metrics Changes - Subscription-based revenues grew by 18% year-over-year, accounting for 82% of total revenue, indicating a shift towards higher-margin revenue streams [16][17] - Services and other revenues increased by 5% year-over-year, driven by higher professional services revenues [17] - Total annualized recurring revenue (ARR) reached $888 million, up 12% year-over-year, with subscription ARR growing to $745 million, a 14% increase [18] Market Data and Key Metrics Changes - The backlog increased to approximately $2.5 billion, representing a 24% year-over-year growth, driven by expansion with existing customers and new activity [19] - The company secured seven Tier 1 and enterprise deals in Q3, indicating strong market demand and competitive positioning [5][6] Company Strategy and Development Direction - The company is focusing on AI integration into its platform, showcasing several AI capabilities during its Dev Days event [10][12] - A new leadership structure was announced to align talent with long-term strategy, emphasizing operational excellence and AI enablement [13][14] - The company aims to leverage its existing customer base and partnerships to drive innovation and growth in the financial services sector [12][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand environment and the company's ability to close the year strongly, with a solid pipeline heading into 2026 [12][26] - The company raised its full-year revenue guidance to a range of $789-$793 million, reflecting a year-over-year growth of 13%-14% [22][24] - Management noted that the demand for digital banking solutions remains strong, as financial institutions seek to enhance their offerings in a changing interest rate environment [85] Other Important Information - The company authorized a share repurchase program for up to $150 million, indicating confidence in its financial position [21][22] - The gross margin for Q3 was 57.9%, up from 56% in the prior year, with expectations for further expansion in Q4 [19][20] Q&A Session Summary Question: Management changes and their timing - Management explained that the changes were made to align technical resources and enhance operational efficiency, particularly in light of a strong bookings quarter [30][32] Question: AI development and market appetite - Management highlighted ongoing conversations with conservative buyers about AI solutions, indicating a growing interest and potential for future contributions [38][39] Question: Cross-selling opportunities and renewal cohorts - Management confirmed strong cross-selling opportunities exist, particularly among tier one customers, with a similar renewal cohort composition expected for 2026 [64][110] Question: Pricing environment and competitive positioning - Management stated that there have been no significant changes in pricing discipline, maintaining a premium pricing strategy based on the value provided [59] Question: Gross margin outlook for 2026 - Management indicated that the completion of the cloud migration project will be a key driver for achieving the 60% gross margin target in 2026 [89]

November 5, 2025 3 rd Quarter 2025 Results Safe Harbor Statement This presentation and the accompanying oral presentation contain forward -looking statements and information that are based on our management's beliefs and assumptions and on information currently available to our management . The statements and information contained in this presentation that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the S ...

Customer Metrics - As of December 31, 2024, the company had 460 Installed Customers on its digital banking platform, up from 450 in 2023 and 444 in 2022[110]. - The average number of Registered Users per Installed Customer increased, with approximately 24.7 million Registered Users as of December 31, 2024, compared to 22.0 million in 2023 and 21.1 million in 2022[111]. - The company's net revenue retention rate was 109%, 108%, and 110% for the years ended December 31, 2024, 2023, and 2022, respectively[113]. - The subscription net revenue retention rate was 114%, 112%, and 115% for the same years[113]. Financial Performance - Subscription Annual Recurring Revenue (ARR) was $681.9 million, $593.9 million, and $500.9 million for the years ended December 31, 2024, 2023, and 2022, respectively[115]. - Total ARR was $824.2 million, $734.8 million, and $655.2 million for the years ended December 31, 2024, 2023, and 2022, respectively[115]. - The annual revenue churn was 4.4%, 6.1%, and 6.3% for the years ended December 31, 2024, 2023, and 2022, respectively[116]. - For the three months ended September 30, 2025, the company reported revenues of $201.7 million, a 15.3% increase from $175.0 million in the same period of 2024[139]. - For the nine months ended September 30, 2025, revenues rose by $73.2 million, or 14.3%, to $586.6 million, primarily due to a $70.9 million increase in subscription revenue[144]. - Revenues for the three months ended September 30, 2025, increased by $26.7 million, or 15.2%, to $201.7 million, driven by a $24.6 million increase in subscription revenue[143]. Operating Expenses and Profitability - Non-GAAP operating income for the three months ended September 30, 2025, was $40.7 million compared to $25.3 million for the same period in 2024[120]. - Adjusted EBITDA for the three months ended September 30, 2025, was $48.8 million, compared to $32.6 million for the same period in 2024, reflecting a 49.5% increase[123]. - The cost of revenues as a percentage of revenues decreased to 46.0% for the three months ended September 30, 2025, down from 49.1% in 2024, indicating improved cost efficiency[141]. - Operating expenses totaled $97.8 million for the three months ended September 30, 2025, compared to $101.9 million in 2024, showing a reduction in expenses[139]. - Research and development expenses for the three months ended September 30, 2025, were $38.9 million, representing 19.3% of revenues, down from 21.1% in 2024[141]. - The company recognized a gross profit of $108.8 million for the three months ended September 30, 2025, which is 54.0% of revenues, up from 50.9% in 2024[141]. Cash Flow and Liquidity - Net cash provided by operating activities for the nine months ended September 30, 2025 was $137.8 million, compared to $92.7 million for the same period in 2024[167]. - As of September 30, 2025, the company had cash, cash equivalents, and investments totaling $568.7 million[166]. - The company experienced a net increase in cash, cash equivalents, and restricted cash of $113.7 million for the nine months ended September 30, 2025[167]. - The company anticipates that cash flow from operations and available borrowings will be adequate to meet cash requirements for the next twelve months[166]. Strategic Initiatives - The company continues to invest in expanding its digital banking platform and intends to pursue strategic acquisitions to enhance its offerings[101]. - The company aims to enhance customer engagement and retention through its comprehensive suite of digital solutions tailored to the needs of financial institutions[102]. - The company plans to continue investing in its sales organization to capture opportunities in the financial institution, FinTech, and Alt-FI markets[100]. - The company plans to continue investing in technology infrastructure and customer support to enhance efficiency and support growth[148]. Market and Economic Conditions - The financial services industry is undergoing significant transformation, with increasing demand for digital solutions from financial institutions and the rise of FinTechs and Alt-FIs[97]. - Recent geopolitical tensions and regulatory changes may introduce uncertainty but have not yet materially impacted the company's operations or financial performance[106][105]. - Inflation has not had a direct material effect on the company's business, but significant inflationary pressures could harm financial condition and results of operations[187]. Legal and Regulatory Matters - The company paid $1.8 million in March 2025 to settle a legal dispute, which is excluded from non-GAAP financial measures[120]. - General and administrative expenses for the nine months ended September 30, 2025, rose by $2.1 million, or 2.3%, to $95.1 million, primarily due to a non-recurring legal settlement charge[156]. Risk Management - The company does not believe it has significant exposure to foreign currency exchange risks due to low volume of payments through foreign subsidiaries[185]. - The most significant currency exposures as of September 30, 2025, included the Indian rupee, Mexican peso, Canadian dollar, Australian dollar, and British pound[185]. - The company does not currently use derivative financial instruments to mitigate foreign currency exchange risks but may consider this in the future[186].

Financial Performance - Revenue for Q3 2025 was $201.7 million, representing a 15% year-over-year increase and a 3% increase from Q2 2025[7] - GAAP net income for Q3 2025 was $15.0 million, compared to a net loss of $11.8 million in the prior-year quarter[7] - Adjusted EBITDA for Q3 2025 was $48.8 million, up from $32.6 million in the prior-year quarter[7] - Subscription Annualized Recurring Revenue increased to $745.4 million, a 14% year-over-year growth[8] - Remaining Performance Obligations (Backlog) totaled approximately $2.5 billion, reflecting a 24% year-over-year growth[8] - Q2 Holdings raised its full-year 2025 revenue guidance to between $789.0 million and $793.0 million, indicating a year-over-year growth of 13% to 14%[14] - Adjusted EBITDA for the full year 2025 is projected to be between $182.5 million and $185.5 million, representing 23% of revenue[14] - Q2 Holdings reported revenues of $201.7 million for the three months ended September 30, 2025, representing a 15.3% increase from $175.0 million in the same period of 2024[31] - The company achieved a net income of $15.0 million for Q3 2025, compared to a net loss of $11.8 million in Q3 2024, marking a significant turnaround[31] - GAAP gross profit for Q3 2025 was $108,845, compared to $89,059 in Q3 2024, representing a 22.2% increase[35] - Revenues for Q3 2025 were $201,704, an increase of 15.3% from $175,021 in Q3 2024[35] - Non-GAAP gross margin improved to 57.9% in Q3 2025, compared to 56.0% in Q3 2024[35] Assets and Liabilities - Total current assets increased to $707.3 million as of September 30, 2025, up from $558.7 million at the end of 2024, reflecting a growth of 26.6%[29] - Cash and cash equivalents rose to $472.4 million, compared to $358.6 million at the end of 2024, indicating a 31.7% increase[29] - Q2 Holdings' total assets reached $1.43 billion as of September 30, 2025, up from $1.29 billion at the end of 2024, representing an increase of 10.2%[29] - The company’s total liabilities increased to $803.8 million as of September 30, 2025, compared to $777.0 million at the end of 2024, reflecting a rise of 3.4%[29] Operating Expenses - Operating expenses for Q3 2025 totaled $97.8 million, a decrease from $101.9 million in Q3 2024, showing a reduction of 4.0%[31] - Non-GAAP general and administrative expense for the nine months ended September 30, 2025, was $58,085, slightly down from $59,059 in 2024[35] Shareholder Actions - The company announced a share repurchase program of up to $150 million[6] - The weighted average common shares outstanding for Q3 2025 were 62.5 million, compared to 60.3 million in Q3 2024, indicating a growth in shares[31] Strategic Initiatives - The company signed seven Enterprise and Tier 1 contracts in Q3 2025, including agreements with Top 50 U.S. Enterprise banks[8] - Leadership changes were announced to align talent with the company's long-term strategy, including the appointment of a new Chief Operating Officer[15] - Q2 Holdings provided guidance for future revenues, expecting continued growth driven by new product developments and market expansion strategies[27] Cash Flow - Free cash flow for the nine months ended September 30, 2025, was $116,778, up from $69,874 in 2024, indicating a 67.1% increase[37] Non-GAAP Metrics - Non-GAAP gross profit for the nine months ended September 30, 2025, reached $338,974, up from $285,211 in the same period of 2024, a growth of 18.9%[35] - GAAP operating income for the nine months ended September 30, 2025, was $23,033, a significant recovery from a loss of $40,688 in the same period of 2024[35] - Adjusted EBITDA for the nine months ended September 30, 2025, was $135,326, compared to $87,714 in 2024, reflecting a 54.3% increase[35] - Non-GAAP operating income for Q3 2025 was $40,710, up from $25,324 in Q3 2024, marking a 60.8% increase[35]

Core Insights - Q2 Holdings, Inc. reported third quarter 2025 results with revenue of $201.7 million, reflecting a 15 percent increase year-over-year and a 3 percent increase from the second quarter of 2025 [1] - The company's GAAP gross margin improved to 54.0 percent, up from 50.9 percent in the same quarter last year and 53.6 percent in the previous quarter [1] - GAAP net income for the third quarter was reported at $15.0 million [1]

Core Viewpoint - Q2 Holdings, Inc. (NYSE:QTWO) is identified as a stock with exponential growth potential heading into 2026, despite a recent price target reduction by Stifel from $110 to $90 while maintaining a "Buy" rating [1][2]. Group 1: Stock Performance and Analyst Insights - The stock has underperformed compared to the broader software group since the US Federal Reserve announced a rate cut in September [2]. - Historically, management has indicated that a reduced rate environment could catalyze technology investments, as banks focus on efficiency and deposit gathering when net interest margins decline [2]. Group 2: Company Management and Growth Strategy - Q2 Holdings' management remains confident in its profitable growth strategy for the remainder of the year, supported by strong execution and a robust pipeline [3]. - The company provides cloud-based digital banking and lending solutions to financial institutions both in the U.S. and internationally [3]. - Despite facing elevated customer churn in Q2 2025 due to a mix of M&A and non-renewing point solution customers, the company maintains a target of sub 5% overall churn for 2025 [3]. - Q2 Holdings is positioned to achieve a 13% subscription revenue target for 2025, with expectations of improved profitability and cash flow [3].