Q2 (QTWO) - 2021 Q4 - Annual Report

Customer Base and Market Position - As of December 31, 2021, the company had over 1,200 financial institution customers, including 40% of the top 100 U.S. banks by total assets[37] - The market for the company's digital banking platform is estimated to exceed $7.0 billion, while the digital lending solutions market is over $4.0 billion, and the Helix solutions market is greater than $2.0 billion, totaling a worldwide market of over $13.0 billion[39] - The company has seen a 40% increase in the average number of products included in new digital banking platform deals over the past five years[47] - The Helix platform supports over 11 million End Users, positioning the company favorably in the growing market of Brands incorporating banking into their offerings[45] Product and Service Offerings - The company has invested significantly in expanding its digital banking platform since its introduction in 2005, now offering an integrated collection of solutions including commercial banking, regulatory compliance, and digital lending[36] - The company's Q2 Innovation Studio allows financial institutions and technology partners to develop unique extensions and integrations to its digital banking platform, enhancing customer offerings[41] - The digital banking platform supports unified digital banking services across various segments, enabling financial institutions to optimize user acquisition, engagement, and retention[41] - The digital banking solutions are designed to support rapid addition of new services and scalability as customer needs evolve[43] - The Q2 Innovation Studio was introduced to allow financial institutions and FinTechs to develop and distribute innovative products and services through Q2's digital banking platform[59] - The PrecisionLender platform provides actionable insights for commercial bankers, enhancing the negotiation process for loans and deposits by analyzing the entire commercial portfolio[56] - Q2's digital lending platform automates and digitizes lending activities, supporting various loan types including consumer, commercial, and peer-to-peer[57] - Q2's Helix service enables FinTechs to incorporate banking services into their digital offerings, meeting regulatory requirements while providing personalized financial experiences[60] - The Q2 CardSwap feature allows users to automatically update payment information for subscriptions when receiving new debit or credit cards[1] Financial Performance and Stability - The company generated cash flow from operations in the most recent full year, indicating financial stability and maturity compared to competitors[47] - The average term of customer agreements for the digital banking platform is over five years, contributing to predictable revenue streams[47] - The company has outstanding principal amounts of $327.2 million of 2023 Notes and 2026 Notes with a fixed annual interest rate of 0.75%[379] - The company also has an outstanding principal amount of $350.0 million of 2025 Notes with a fixed annual interest rate of 0.125%[379] - The company does not believe it has significant exposure to foreign currency exchange risks due to the relatively low volume of payments made through foreign subsidiaries[380] - The company monitors inflation impacts and aims to reduce effects through pricing strategies and cost reductions[382] Security and Compliance - Security remains a critical concern in digital financial services, requiring continuous investment and vigilance to protect against evolving threats[31] - The company employs multi-layered security controls to protect customer and End User information, enhancing trust and compliance[43] - The company has a comprehensive security model that includes multiple layers of authentication for end users[71] - The Centrix Dispute Tracking System assists in managing electronic transaction disputes, ensuring compliance with regulatory requirements[55] Research, Development, and Innovation - The company emphasizes research and development to innovate and improve solutions, ensuring they meet evolving customer needs and market dynamics[66] - The company aims to continue investing in research and development, sales, and marketing to remain competitive in the financial services market[79] - The company has nine U.S. patent applications pending and eight issued U.S. patents, with expiration dates ranging from October 2027 to January 2038[72] Employee Engagement and Community Involvement - As of December 31, 2021, the company employed 2,028 individuals, with 2,024 being full-time employees[80] - The employee population as of December 31, 2021, included 35% women and 27% non-white individuals[82] - In 2021, the company reported over 4,000 hours of community service and more than $275,000 in donations to various causes[88] - The company has committed over $965,000 in corporate donations and sponsorships, including matching employee contributions[89] - The company offers a wide range of global benefits, including 401(k) retirement plans and various insurance options[98] - The company emphasizes employee well-being with innovative benefits such as virtual wellness clinics and Employee Assistance Programs[99] - The company has established relationships with world-class universities to attract diverse talent[97] - The company continues to invest in leadership development resources and programs for all experience levels[95] Operational Efficiency and Scalability - The digital banking platform has over 1,000 integrations with various financial services technology partners, enhancing operational efficiency and user engagement[43] - The company has implemented a multi-tiered architecture for its digital banking platform to enhance scalability and security[68] - The digital banking platform has maintained an average uptime exceeding 99.9% since January 2013, demonstrating high reliability[70] Marketing and Customer Expansion - Q2's marketing efforts focus on demand creation and customer expansion through targeted programs and industry partnerships[65] - Q2's implementation and customer support services aim to enhance customer retention and drive incremental sales opportunities through high-quality service delivery[61]