Q2 (US:QTWO)2025-05-07 21:02Customer Growth and Engagement - As of December 31, 2024, the company had 460 Installed Customers on its digital banking platform, an increase from 450 in 2023 and 444 in 2022[102] - The average number of Registered Users per Installed Customer grew to approximately 24.7 million as of December 31, 2024, up from 22.0 million in 2023 and 21.1 million in 2022[103] Revenue Metrics - The company's net revenue retention rate was 109% for the year ended December 31, 2024, compared to 108% in 2023 and 110% in 2022[104] - The subscription net revenue retention rate was 114% for the year ended December 31, 2024, compared to 112% in 2023 and 115% in 2022[104] - 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, with a March 31, 2025 figure of $702.4 million compared to $615.1 million as of March 31, 2024[106] - Total ARR was $824.2 million, $734.8 million, and $655.2 million for the years ended December 31, 2024, 2023, and 2022, respectively, with a March 31, 2025 figure of $846.6 million compared to $761.0 million as of March 31, 2024[106] - Annual revenue churn was 4.4%, 6.1%, and 6.3% for the years ended December 31, 2024, 2023, and 2022, respectively[107] Financial Performance - Revenues increased by $24.2 million, or 14.6%, from $165.5 million in Q1 2024 to $189.7 million in Q1 2025, primarily driven by an $23.9 million increase in subscription revenue[135] - Cost of revenues rose by $5.5 million, or 6.6%, from $83.3 million in Q1 2024 to $88.7 million in Q1 2025, mainly due to a $3.5 million increase in personnel costs[137] - Gross profit margin improved to 53.2% in Q1 2025 from 49.7% in Q1 2024, reflecting better cost management[133] - Operating expenses increased by $2.4 million, or 2.5%, from $96.4 million in Q1 2024 to $98.8 million in Q1 2025, but decreased as a percentage of revenues from 58.3% to 52.1%[131][133] - Net income for Q1 2025 was $4.8 million, compared to a net loss of $13.8 million in Q1 2024, indicating a significant turnaround[131] Investment and Strategic Direction - The company continues to invest in expanding its digital banking platform and plans to pursue strategic acquisitions to enhance its offerings[95] - The company aims to enhance operational efficiencies and revenue growth through investments in technology and customer engagement strategies[93] - The company plans to invest in implementation and customer support teams to drive future efficiency and support growth[138] Economic and Market Conditions - The financial services industry is undergoing significant transformation, with increasing demand for digital solutions from financial institutions and FinTechs[91] - The recent imposition of tariffs has introduced uncertainty into the global trade environment, which may indirectly affect the company's operations[98] - The company monitors economic conditions and their potential impacts on its business and the financial services industry[100] - Inflation has not had a direct material effect on the company's business or financial condition[170] - The company may face challenges in offsetting higher costs due to inflation through price increases[170] Operational Metrics - Non-GAAP operating income for the three months ended March 31, 2025, was $32.7 million compared to $18.1 million for the same period in 2024[110] - Adjusted EBITDA for the three months ended March 31, 2025, was $40.7 million compared to $25.2 million for the same period in 2024[114] - The company emphasizes usage-based revenue, recognizing it as incurred, rather than relying solely on contracted minimum revenues[118] - The company does not include revenue from professional services or other non-recurring sources in Total ARR[106] Cash Flow and Liquidity - Net cash provided by operating activities was $43.5 million in Q1 2025, compared to $13.4 million in Q1 2024, with net income of $4.8 million and non-cash adjustments of $40.4 million[153] - Net cash used in investing activities was $19.5 million in Q1 2025, consisting of $34.0 million for purchases of investments and $4.9 million for capitalized software development costs[156] - Net cash provided by financing activities was $0.5 million in Q1 2025, primarily from cash received from exercises of stock options[159] - As of March 31, 2025, the company had cash, cash equivalents, and investments totaling $486.0 million, with adequate liquidity to meet cash requirements for the next twelve months[150] Risk Management - As of March 31, 2025, there were no material changes in quantitative and qualitative market risks compared to the previous fiscal year[167] - The most significant currency exposures include the Indian rupee, Mexican peso, Canadian dollar, Australian dollar, and British pound[168] - The company does not believe it has significant exposure to foreign currency exchange risks due to low payment volumes through foreign subsidiaries[168] - The company currently does not use derivative financial instruments to mitigate foreign currency exchange risks but may consider hedging in the future[169]