Matthew Flake: Thanks, Josh, and good afternoon, everyone. Thank you for joining us today. I will start by walking through our fourth quarter results and highlights, then step back and recap full year 2025 performance before sharing the key themes that define our strategy as we enter 2026. I will then hand the call over to Jonathan who will cover our financial performance, provide guidance for 2026, and share our new financial framework. Starting with the fourth quarter, we delivered a strong finish to the ...

Q2 (NYSE:QTWO) Q4 2025 Earnings call February 11, 2026 05:00 PM ET Company ParticipantsAlex Sklar - Raymond JamesAndrew Schmidt - Managing DirectorJonathan Price - CFOJosh Yankovich - Head of Investor RelationsMatt Flake - CEOMatt VanVliet - Managing DirectorMatthew Inglis - Assistant VPParker Lane - Director of SoftwareTerry Tillman - Managing DirectorConference Call ParticipantsCharles Nabhan - Managing Director and Research AnalystChris Kennedy - Research AnalystElla Smith - Equity Research AnalystJames ...

Q2 (NYSE:QTWO) Q4 2025 Earnings call February 11, 2026 05:00 PM ET Company ParticipantsAlex Sklar - Raymond JamesAndrew Schmidt - Managing DirectorJonathan Price - CFOJosh Yankovich - Head of Investor RelationsMatt Flake - CEOMatt VanVliet - Managing DirectorMatthew Inglis - Assistant VPMatthew Kikkert - Equity Research AssociateMike Infante - VP of Equity ResearchTerry Tillman - Managing DirectorConference Call ParticipantsCharles Nabhan - Managing Director and Research AnalystChris Kennedy - Research Anal ...

Q2 (NYSE:QTWO) Q4 2025 Earnings call February 11, 2026 05:00 PM ET Speaker3Good afternoon. My name is Kevin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings fourth quarter and full year 2025 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, please raise your hand. If you have dialed ...

Summary of Q2 FY Conference Call Company Overview - **Company**: Q2 Holdings, Inc. (NYSE: QTWO) - **Industry**: Digital Banking and FinTech - **Position**: Largest standalone digital banking company globally with 450 digital banking customers, including 40% of the top 100 banks and credit unions [3][4][6] Core Differentiation and Solutions - **Single Platform**: Q2 offers a unified digital banking experience across mobile, tablet, and desktop, enhancing operational efficiency for banks [4][5] - **Target Market**: Focuses on banks and credit unions with assets of $750 million and above, targeting approximately 2,000 institutions [6][7] - **Product Bundling**: Offers a suite of products including fraud solutions and a marketplace (Innovation Studio) for fintech integration [6][8] Revenue Segmentation - **Revenue Composition**: As of Q3, 82% of revenue is subscription-based, which is the highest margin and fastest-growing segment [9][10] - **Digital Banking Revenue**: Represents over 80% of total revenue, with significant contributions from fraud solutions and Innovation Studio [9][10] Growth Drivers - **Customer Expansion**: Increasing revenue from existing customers, with a shift from a 50/50 mix of new and existing logos to a 60/40 or 65/35 mix [11][12] - **Macro Environment Impact**: Rising interest rates and bank consolidation have driven demand for Q2's solutions, leading to record bookings in 2023 [14][17] Industry Trends and Challenges - **Bank M&A Activity**: Q2 has benefited from the consolidation in the banking sector, retaining a high percentage of clients post-acquisition [20][21] - **Interest Rates**: Higher rates have created a favorable environment for Q2, as banks seek to enhance their operational capabilities [18][19] Margin Expansion and Financial Health - **Profitability Focus**: Transitioned to a strategy of profitable growth, achieving approximately $150 million in free cash flow with a 90% conversion from EBITDA [22][23] - **Future Projections**: Expected gross margins to exceed 60% in 2026, with an anticipated EBITDA expansion of 250 basis points [24][25] AI Integration and Competitive Landscape - **AI Initiatives**: Q2 is committed to integrating AI across its platform to enhance efficiency and customer experience, leveraging existing data and relationships [26][28] - **Competitive Position**: Competes primarily with legacy providers like Jack Henry, Fiserv, and FIS, with a favorable win rate in the market [32][34] Future Opportunities - **Emerging Trends**: Q2 sees potential in stablecoins, real-time payments, and open banking, positioning itself to partner and innovate in these areas [35][36] - **Market Penetration**: Less than 5% penetration in the banking space indicates significant growth opportunities ahead [54][55] Capital Allocation Strategy - **Share Buyback Authorization**: Reflects improved cash flow generation, allowing for opportunistic buybacks while maintaining flexibility for investments and M&A [41][44] Conclusion - **Long-term Outlook**: Q2 is well-positioned for growth with a strong focus on customer experience, innovative solutions, and a robust financial strategy, anticipating continued demand in the digital banking sector [54][55]

Financial Data and Key Metrics Changes - The company generated revenue of $195 million, representing a 13% year-over-year growth and exceeding guidance [7][18] - Adjusted EBITDA reached $46 million, with a margin of 23.5%, reflecting strong operational execution [7][24] - Free cash flow was $42 million, driven by improved profitability and effective working capital management [25][26] Business Line Data and Key Metrics Changes - Subscription-based revenues grew 16% year-over-year, accounting for 81% of total revenue [19] - Services and other revenues increased by 1% year-over-year, primarily due to higher professional services tied to core conversions and M&A activity [19][20] - Total annualized recurring revenue (ARR) grew to $861 million, up 10% year-over-year, with subscription ARR at $716 million, a 13% increase [20] Market Data and Key Metrics Changes - The company saw strong bookings performance, including six Tier one wins and notable activity in Tier two and three segments [7][8] - The backlog increased to approximately $2.4 billion, representing a 21% year-over-year growth [21] Company Strategy and Development Direction - The company is focused on driving AI innovation across its product portfolio, particularly in fraud prevention [13][14] - The strategy includes enhancing the Innovation Studio ecosystem to provide customers with access to best-in-class solutions [12][15] - The company aims to capitalize on market demand and expansion opportunities while delivering operational excellence [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the pipeline and anticipated stronger enterprise activity in the second half of the year [33][36] - The company expects continued focus on risk and fraud solutions, which are critical for financial institutions [11][12] - Management raised full-year revenue guidance to a range of $783 million to $788 million, reflecting a year-over-year growth of 12% to 13% [27] Other Important Information - The company hosted its annual customer conference, highlighting the commitment of financial institutions to digital transformation [11][30] - The gross margin improved to 57.5%, driven by a higher mix of subscription-based revenues [22] Q&A Session Summary Question: Is the demand environment showing improvement? - Management noted a strong pipeline but did not see a significant lift in new opportunities yet [33][34] Question: What is the outlook for enterprise activity? - Management indicated that enterprise deals are expected to be more prominent in the second half of the year, with a normal mix of Tier one deals [35][37] Question: Can you quantify the penetration of risk and fraud solutions? - Management stated that there is strong penetration of risk and fraud products among existing customers, with opportunities for further sales [40][42] Question: What drove the higher churn in the second quarter? - Management attributed the higher churn to localized factors and M&A transactions, expecting lower churn in the second half [43][44] Question: How is the company addressing competition in the risk and fraud space? - Management highlighted that many new vendors are partnering with the company to offer comprehensive solutions through Innovation Studio [95] Question: What is the strategy for cross-selling initiatives? - Management reported strong cross-selling momentum following the client conference, with expectations for a robust second half [102][103] Question: What are the long-term benefits of the cloud migration? - Management discussed cost savings and strategic opportunities arising from the transition to the cloud, enhancing operational efficiency [105][108]