Q2 (QTWO) - 2025 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION This section presents Q2 Holdings, Inc.'s unaudited condensed consolidated financial statements and management's analysis Item 1. Financial Statements. This section presents Q2 Holdings, Inc.'s unaudited condensed consolidated financial statements and related notes for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show the company's financial position as of June 30, 2025, compared to December 31, 2024, highlighting changes in assets, liabilities, and stockholders' equity | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $1,385,413 | $1,294,795 | | Total Liabilities | $801,078 | $776,999 | | Total Stockholders' Equity | $584,335 | $517,796 | | Cash and cash equivalents | $414,275 | $358,560 | | Investments | $117,797 | $88,066 | | Convertible notes, current portion | $493,438 | $190,331 | | Deferred revenues, current portion | $179,438 | $137,700 | Condensed Consolidated Statements of Comprehensive Income (Loss) The condensed consolidated statements of comprehensive income (loss) detail the company's financial performance for the three and six months ended June 30, 2025, and 2024, showing significant improvements in net income and a shift from loss to profit | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenues | $195,148 | $172,890 | $384,883 | $338,398 | | Gross profit | $104,564 | $86,827 | $205,554 | $169,079 | | Income (loss) from operations | $9,840 | $(13,703) | $12,029 | $(27,888) | | Net income (loss) | $11,764 | $(13,060) | $16,517 | $(26,903) | | Basic EPS | $0.19 | $(0.22) | $0.27 | $(0.45) | | Diluted EPS | $0.18 | $(0.22) | $0.25 | $(0.45) | Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in stockholders' equity for the three and six months ended June 30, 2025, and 2024, reflecting impacts from net income/loss, stock-based compensation, and common stock issuances | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total stockholders' equity, beginning balances | $545,458 | $464,971 | $517,796 | $448,479 | | Stock-based compensation expense | $23,160 | $25,610 | $45,369 | $47,736 | | Net income (loss) | $11,764 | $(13,060) | $16,517 | $(26,903) | | Total stockholders' equity, ending balances | $584,335 | $480,665 | $584,335 | $480,665 | | Common stock (in shares), ending balances | 62,442 | 60,283 | 62,442 | 60,283 | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows provide a summary of cash generated from or used in operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, showing a significant increase in cash from operating activities in 2025 | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $92,172 | $49,466 | | Net cash provided by (used in) investing activities | $(41,617) | $12,054 | | Net cash provided by financing activities | $4,218 | $11,448 | | Net increase in cash, cash equivalents and restricted cash | $55,224 | $72,708 | | Cash, cash equivalents and restricted cash, end of period | $416,017 | $306,340 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, revenue, debt, and other financial details 1. Organization and Description of Business Q2 Holdings, Inc. is a leading provider of digital solutions to financial institutions, FinTechs, and Alt-FIs, primarily operating on a software-as-a-service (SaaS) model, enabling digital banking, lending, and banking-as-a-service (BaaS) solutions - Q2 Holdings, Inc. provides digital solutions to financial institutions, FinTechs, and Alt-FIs, primarily through a SaaS model, offering digital banking, digital lending, relationship pricing, and BaaS services[21] 2. Summary of Significant Accounting Policies This note outlines the basis of presentation, principles of consolidation, use of estimates, and concentration of credit risk, confirming no material changes to significant accounting policies during the six months ended June 30, 2025, and detailing basic and diluted EPS computations - No material changes to significant accounting policies occurred during the six months ended June 30, 2025, compared to the prior fiscal year[26] | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic net income (loss) per common share | $0.19 | $(0.22) | $0.27 | $(0.45) | | Diluted net income (loss) per common share | $0.18 | $(0.22) | $0.25 | $(0.45) | | Weighted-average common shares outstanding, basic (in thousands) | 62,353 | 60,162 | 61,790 | 59,804 | | Weighted-average common shares outstanding, diluted (in thousands) | 69,642 | 60,162 | 64,963 | 59,804 | 3. Revenues Revenue is recognized when control of goods or services is transferred, primarily from subscription fees, transactional revenue, and professional services, with significant remaining performance obligations | Revenue Source | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Subscription | $158,422 | $136,064 | $312,711 | $266,421 | | Transactional | $16,734 | $17,079 | $35,351 | $34,130 | | Services and other | $19,992 | $19,747 | $36,821 | $37,847 | | Total revenues | $195,148 | $172,890 | $384,883 | $338,398 | - Remaining performance obligations totaled $2.36 billion as of June 30, 2025, with approximately 54% expected to be recognized as revenue in the next 24 months[34] - Allowance for credit losses related to contract assets was $0.04 million (June 30, 2025) vs. $0.02 million (December 31, 2024), and for accounts receivable was $0.4 million (June 30, 2025) vs. $0.3 million (December 31, 2024)[35][36] 4. Fair Value Measurements This note details the fair value hierarchy for financial assets, categorizing them into Level I (quoted prices in active markets) and Level II (observable inputs other than quoted prices), with the majority of investments falling under Level II | Asset Category | Fair Value (June 30, 2025, in thousands) | Level I (in thousands) | Level II (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------- | :---------------------- | | Money market funds | $37,969 | $37,969 | $— | | Corporate bonds and commercial paper | $49,235 | $— | $49,235 | | Certificates of deposit | $13,454 | $— | $13,454 | | U.S. government securities | $54,533 | $— | $54,533 | | Total Investments | $117,222 | $— | $117,222 | 5. Cash, Cash Equivalents and Investments The company's cash, cash equivalents, and investments primarily consist of cash, U.S. government securities, corporate bonds, commercial paper, certificates of deposit, and money market funds. All debt investments are classified as available-for-sale and recorded at fair value, with no credit loss impairments recognized - Cash, cash equivalents, and investments totaled $532.1 million as of June 30, 2025, compared to $446.6 million as of December 31, 2024[12][44] - No impairments for credit losses were recognized on available-for-sale debt securities during the six months ended June 30, 2025 or 2024[42] | Investment Category | Fair Value (June 30, 2025, in thousands) | Fair Value (December 31, 2024, in thousands) | | :-------------------------------- | :--------------------------------------- | :----------------------------------------- | | Due within one year or less | $110,655 | $49,460 | | Due after one year through two years | $6,567 | $38,256 | | Total Debt Investments | $117,222 | $87,716 | 6. Goodwill and Intangible Assets Goodwill remained stable at $512.9 million, with no impairment identified. Intangible assets, including acquired technology and capitalized software development costs, decreased slightly due to amortization - Goodwill carrying amount was $512.9 million at both June 30, 2025, and December 31, 2024, with no impairment identified[50] | Intangible Asset Category | Net Carrying Amount (June 30, 2025, in thousands) | Net Carrying Amount (December 31, 2024, in thousands) | | :-------------------------------- | :------------------------------------------------ | :-------------------------------------------------- | | Customer relationships | $— | $94 | | Acquired technology | $26,298 | $37,306 | | Capitalized software development costs | $60,471 | $57,233 | | Total Intangible Assets | $86,769 | $94,633 | - Capitalized software development costs were $11.6 million for the six months ended June 30, 2025, compared to $13.4 million for the same period in 2024[50] 7. Leases The company leases office space under non-cancellable operating leases in various U.S. cities and internationally. A $2.4 million lease liability was recorded for a U.S. office lease renewal in Q2 2025, with no impairment charges related to right-of-use assets - A $2.4 million lease liability was recorded in Q2 2025 for the renewal of a U.S. office lease agreement, with a corresponding $2.1 million right-of-use asset[53] | Year Ended December 31, | Operating Lease Payments (in thousands) | | :------------------------ | :-------------------------------------- | | 2025 (July 1 to December 31) | $5,973 | | 2026 | $10,569 | | 2027 | $9,389 | | 2028 | $6,266 | | 2029 | $4,771 | | Thereafter | $16,859 | | Total lease payments | $53,827 | | Less: imputed interest | $(7,941) | | Total operating lease liabilities | $45,886 | 8. Commitments and Contingencies The company has non-cancelable contractual commitments related to convertible notes, third-party products, and sponsorship obligations. A non-recurring legal settlement of $1.8 million was paid in March 2025 for a commercial real estate dispute | Year Ended December 31, | Contractual Commitments (in thousands) | | :------------------------ | :------------------------------------- | | 2025 (July 1 to December 31) | $233,904 | | 2026 | $366,976 | | 2027 | $31,090 | | 2028 | $14,330 | | 2029 | $182 | | Thereafter | $— | | Total commitments | $646,482 | - In March 2025, the Company paid $1.8 million to settle a dispute with a former commercial real estate broker, recorded as a non-recurring charge[59] 9. Debt This note details the company's convertible senior notes (2026 Notes and 2025 Notes), capped call transactions, and a revolving credit agreement. The 2025 Notes mature in November 2025 and the 2026 Notes in June 2026. The company has a $125.0 million revolving credit facility with no outstanding borrowings as of June 30, 2025 | Note Type | Date Issued | Maturity Date | Principal (in thousands) | Interest Rate per Annum | | :---------- | :---------- | :------------ | :----------------------- | :---------------------- | | 2026 Notes | June 1, 2019 | June 1, 2026 | $303,995 | 0.75% | | 2025 Notes | November 15, 2020 | November 15, 2025 | $191,000 | 0.125% | - The company repurchased $12.3 million of 2026 Notes and $159.0 million of 2025 Notes in March 2023, resulting in a $19.9 million gain on early debt extinguishment[64] - A five-year secured Revolving Credit Agreement provides for a revolving line of credit of up to $125.0 million, with no outstanding borrowings as of June 30, 2025[73][75] | Interest Expense | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Contractual interest expense | $708 | $630 | $1,426 | $1,259 | | Amortization of debt issuance costs | $543 | $495 | $1,086 | $991 | | Total | $1,251 | $1,125 | $2,512 | $2,250 | 10. Stock-Based Compensation The company has equity incentive plans (2014 Plan, 2023 Plan) and an Employee Stock Purchase Plan (ESPP) to grant stock-based awards. Total stock-based compensation expense decreased for both the three and six months ended June 30, 2025, compared to 2024 | Expense Category | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cost of revenues | $2,062 | $3,400 | $5,280 | $6,565 | | Sales and marketing | $3,989 | $4,469 | $7,441 | $8,340 | | Research and development | $4,161 | $4,625 | $8,203 | $8,468 | | General and administrative | $12,288 | $11,837 | $22,586 | $21,759 | | Total stock-based compensation expense | $22,500 | $24,331 | $43,510 | $45,132 | 11. Income Taxes The company's effective tax rate for Q2 2025 was 12.8%, lower than the statutory rate due to a valuation allowance, with recent tax law changes not yet reflected | Period | Effective Tax Rate | | :-------------------------------- | :------------------- | | Three Months Ended June 30, 2025 | 12.8% | | Three Months Ended June 30, 2024 | (19.0)% | | Six Months Ended June 30, 2025 | 11.8% | | Six Months Ended June 30, 2024 | (15.7)% | - The company maintains a valuation allowance against most deferred tax assets due to historical pretax net losses[83] - The 'One Big Beautiful Bill Act' (H.R. 1), signed on July 4, 2025, includes favorable changes to federal tax law for 2025, but these were not reflected in the June 30, 2025, income tax provision[132] 12. Segments and Geographic Information The company operates as a single operating segment, providing digital solutions to financial institutions, FinTechs, and Alt-FIs, with the majority of revenues derived from subscription fees. Substantially all principal operations, assets, and decision-making functions are located in the United States - The company operates as a single operating segment, with its chief operating decision maker (CEO) reviewing financial information on a consolidated basis[85][86] - The majority of revenues come from subscription fees for solutions hosted in third-party data centers or public cloud service providers[85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on the company's financial condition and results, highlighting revenue growth, improved operating income, and strategic investments Overview Q2 Holdings, Inc. is a leading provider of digital solutions for financial institutions, FinTechs, and Alt-FIs, offering a broad portfolio of digital banking, lending, and BaaS solutions. The company primarily uses a SaaS model, with revenues growing as customers adopt more solutions and increase End-User engagement. Strategic investments in innovation and acquisitions are aimed at expanding market presence and improving operating efficiencies - Q2 offers digital banking, digital lending, relationship pricing, Q2 Innovation Studio, and Helix (cloud-native core and BaaS) solutions[88] - The company primarily sells solutions via a SaaS model, with pricing based on solutions purchased and Registered Users, leading to revenue growth from increased End-User engagement and additional solution adoption[92] - Investments in sales, marketing, and R&D are expected to increase costs in absolute dollars but improve margins over the long term through economies of scale[93][94][96] Recent Events Recent events, including U.S. tariffs, changes in financial services regulations (like the GENIUS Act), and heightened geopolitical instability, have introduced uncertainty but have not yet had a material impact on the company's operations or financial performance. The company continues to monitor these evolving conditions - U.S. tariffs and trade measures, regulatory changes (e.g., GENIUS Act signed July 18, 2025), and geopolitical instability have not had a material impact on operations or financial performance to date[98][99][100][101] Key Operating Measures The company monitors Installed Customers, Registered Users, Net Revenue Retention Rate, Annualized Recurring Revenue (ARR), and Revenue Churn to evaluate growth trends and operational effectiveness. All metrics show positive trends, indicating strong customer retention and expansion | Metric | December 31, 2024 | December 31, 2023 | December 31, 2022 | | :------------------------ | :------------------ | :------------------ | :------------------ | | Installed Customers | 460 | 450 | 444 | | Registered Users (millions) | 24.7 | 22.0 | 21.1 | | Net Revenue Retention Rate | 109% | 108% | 110% | | Subscription Net Revenue Retention Rate | 114% | 112% | 115% | | Annual Revenue Churn | 4.4% | 6.1% | 6.3% | | Metric | June 30, 2025 | June 30, 2024 | | :------------------------ | :------------ | :------------ | | Registered Users (millions) | 26.2 | 23.6 | | Subscription ARR (millions) | $716.0 | $633.9 | | Total ARR (millions) | $860.6 | $783.0 | Non-GAAP Financial Measures The company uses non-GAAP financial measures, including Non-GAAP Operating Income and Adjusted EBITDA, to provide supplemental information for assessing operating performance. These measures exclude items like stock-based compensation, amortization of acquired intangibles, and non-recurring legal settlements to offer a clearer view of core operational results - Non-GAAP measures exclude deferred revenue reduction from purchase accounting, stock-based compensation, transaction-related costs, amortization of acquired technology and intangibles, lease and other restructuring charges, and non-recurring legal settlements[112] | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | GAAP operating income (loss) | $9,840 | $(13,703) | $12,029 | $(27,888) | | Non-GAAP operating income | $37,756 | $22,475 | $70,453 | $40,556 | | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income (loss) | $11,764 | $(13,060) | $16,517 | $(26,903) | | Adjusted EBITDA | $45,798 | $29,871 | $86,508 | $55,104 | Components of Operating Results This section details the components of operating results, including revenue recognition, cost of revenues, and operating expenses, primarily from subscription-based SaaS solutions - Revenues are primarily derived from subscription fees for SaaS solutions, transactional revenue, and professional/implementation services, recognized over time or as incurred[117][118] - Cost of revenues includes personnel costs for implementation and support, third-party data center and cloud costs, amortization of deferred costs, and acquired technology intangibles[119] - Operating expenses consist of sales and marketing, research and development, general and administrative, amortization of acquired intangibles, and lease and other restructuring charges[122] Results of Operations This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2025, versus 2024, showing significant revenue growth, improved gross profit margins, and a shift from operating loss to income. Key drivers include increased subscription revenue and reduced amortization expenses | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenues | $195,148 | $172,890 | $384,883 | $338,398 | | Cost of revenues | $90,584 | $86,063 | $179,329 | $169,319 | | Gross profit | $104,564 | $86,827 | $205,554 | $169,079 | | Income (loss) from operations | $9,840 | $(13,703) | $12,029 | $(27,888) | | Net income (loss) | $11,764 | $(13,060) | $16,517 | $(26,903) | | Metric (as % of revenues) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross profit | 53.6% | 50.2% | 53.4% | 50.0% | | Income (loss) from operations | 5.0% | (7.9)% | 3.1% | (8.2)% | | Net income (loss) | 6.0% | (7.6)% | 4.3% | (8.0)% | - Revenues increased by 12.9% (QoQ) and 13.7% (YoY), primarily driven by a $22.4 million (QoQ) and $46.3 million (YoY) increase in subscription revenue[137][138] - Amortization of acquired intangibles decreased by 100% (QoQ) and 99% (YoY) due to assets being fully amortized[152] - Lease and other restructuring charges decreased by 127% (QoQ) to a credit of $0.3 million, mainly due to a $0.7 million reversal of a previously accrued liability[153] Seasonality and Quarterly Results Operating results fluctuate quarterly due to investment timing and implementation activities, which are historically lower in the first half of the year. General economic conditions and global events can disrupt typical seasonality trends, making period-to-period comparisons less meaningful - Operating results fluctuate due to investment timing and implementation activities, which tend to be lower in the first half of the year[159] - General economic conditions and global events can impact seasonality, making period-to-period comparisons potentially unreliable for future results[159] Liquidity and Capital Resources As of June 30, 2025, the company's liquidity sources include $532.1 million in cash, cash equivalents, and investments, along with access to a $125.0 million Revolving Credit Agreement. Cash flow from operating activities significantly increased to $92.2 million for the six months ended June 30, 2025, from $49.5 million in the prior year - Principal sources of liquidity as of June 30, 2025, were $532.1 million in cash, cash equivalents, and investments, plus a $125.0 million Revolving Credit Agreement[160] | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $92,172 | $49,466 | | Net cash used in investing activities | $(41,617) | $12,054 | | Net cash provided by financing activities | $4,218 | $11,448 | | Net increase in cash, cash equivalents and restricted cash | $55,224 | $72,708 | - Operating cash flow increase in 2025 was driven by net income and non-cash adjustments, partially offset by increases in accounts receivable and deferred solution/implementation costs[163] Contractual Obligations and Commitments The company's primary commitments include convertible senior notes, non-cancelable operating leases, and minimum purchase commitments for third-party products and sponsorship obligations, as detailed in Notes 7 and 8 to the financial statements - Principal commitments include 2026 Notes, 2025 Notes, non-cancelable operating leases, and minimum purchase commitments for sponsorship, third-party products, and co-location fees[170] Recent Accounting Pronouncements This section refers to Note 2 for details on recent accounting pronouncements, including ASU No. 2023-09 (Income Tax Disclosures) and ASU No. 2024-03 (Expense Disaggregation Disclosures), which the company is currently evaluating for impact on future financial statements - The company is evaluating the impact of ASU No. 2023-09 (Income Taxes) and ASU No. 2024-03 (Expense Disaggregation Disclosures) on its financial statement disclosures[28][29][171] Critical Accounting Policies and Significant Judgements and Estimates The preparation of financial statements requires management to make estimates and assumptions, which are based on historical experience and other reasonable factors. No material changes to significant accounting policies were reported for the period - The preparation of financial statements involves significant estimates and assumptions, which are regularly evaluated[172] - No material changes to critical accounting policies and significant judgments and estimates were reported[173] Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section discusses the company's exposure to market risks, primarily interest rate risk, foreign currency risk, and inflation risk. The company does not use derivative financial instruments for speculative purposes and believes it has no material exposure to interest rate changes due to the short-term nature of investments. Foreign currency and inflation risks are currently considered insignificant but are continuously monitored - The company's primary market risks are interest rate risk, foreign currency risk, and inflation risk[174] - Due to the short-term nature of investments, the company believes it has no material exposure to changes in the fair value of its investment portfolio from interest rate changes[175] - Fixed interest rates on convertible notes (0.75% for 2026 Notes, 0.125% for 2025 Notes) mitigate interest rate risk on these obligations[175] - Foreign currency risk from operations in India, Mexico, Canada, Australia, and the UK is not considered significant due to low payment volumes, and the company does not currently use derivatives for hedging[178][179] - Inflation has not had a direct material effect on the business, but the inability to offset higher costs through price increases could harm future results[180] Item 4. Controls and Procedures. Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, concluding they were effective. No material changes in internal control over financial reporting were identified during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[182] - No material changes in internal control over financial reporting were identified during the three-month period ended June 30, 2025[183] PART II: OTHER INFORMATION This section provides other information including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings. The company is not currently a party to any legal proceedings that management believes would have a material adverse impact on its business, financial condition, results of operations, or cash flows - Management believes there are no pending legal claims or actions that would materially impact the company's business or financial condition[185] Item 1A. Risk Factors. This section updates the risk factors from the Annual Report on Form 10-K, specifically highlighting the potential adverse effects of changes to U.S. trade policy, tariffs, and import/export regulations. While these developments have not yet had a material impact, the company continues to monitor their potential macroeconomic implications - Changes to U.S. trade policy, tariffs, and import/export regulations may indirectly affect the business by impacting third-party service providers, cloud infrastructure partners, or customers, potentially affecting demand or increasing service delivery costs[187] - To date, these trade developments have not had a material impact on operations or financial performance[188] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds occurred[189] Item 3. Defaults Upon Senior Securities. There were no defaults upon senior securities to report for the period - No defaults upon senior securities occurred[190] Item 4. Mine Safety Disclosures. This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[191] Item 5. Other Information. This section discloses Rule 10b5-1 Trading Plans entered into by certain officers and directors, outlining potential sales of common stock. It also mentions the company's mandatory sell-to-cover policy for equity incentive plan participants to cover tax withholding obligations - John Breeden (Chief Delivery Officer) entered a Rule 10b5-1 Trading Plan on May 19, 2025, for potential sale of up to 126,328 shares between August 2025 and August 2026[192] - James Offerdahl (Director) entered a Rule 10b5-1 Trading Plan on May 13, 2025, for potential sale of up to 3,627 shares between August 2025 and August 2026[193] - Lynn Atchison (Director) entered a Rule 10b5-1 Trading Plan on June 6, 2025, for potential sale of up to 5,000 shares between September 2025 and September 2026[194] - The company adopted a mandatory sell-to-cover policy in June 2023 for equity incentive plan participants to cover tax withholding obligations upon vesting/settlement[195] Item 6. Exhibits. This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL interactive data files - Exhibits include the Fifth Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, CEO/CFO certifications (Sarbanes-Oxley Act), and XBRL Instance Document[198] SIGNATURES The report is signed by Matthew P. Flake, Chief Executive Officer and Chairman, and Jonathan A. Price, Chief Financial Officer, on July 30, 2025, certifying its submission pursuant to the Securities Exchange Act of 1934 - The report was signed by Matthew P. Flake (CEO and Chairman) and Jonathan A. Price (CFO) on July 30, 2025[203]