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QH

Q2 Holdings, Inc. (QTWO)·Q1 2025 Earnings Summary

Executive Summary

  • Q2 Holdings delivered a clean beat and healthy acceleration: revenue grew 15% year over year to $189.7M (+4% q/q), above the S&P Global consensus of $186.5M*, while “Primary EPS” modestly topped by ~2¢ at $0.50 vs $0.48*; GAAP diluted EPS was $0.07 and adjusted EBITDA rose to $40.7M (21.5% margin) . Q4 2024 revenue was $183.0M and GAAP diluted EPS was $0.00 .
  • Mix and bookings improved quality: non-GAAP gross margin reached 57.9% (vs 54.9% y/y; 57.4% q/q), Subscription ARR increased to $702.4M (+14% y/y), and backlog (RPO) reached ~$2.3B (+20% y/y) on five Tier 1/Enterprise deals and three top-10 renewals .
  • Guidance raised: FY25 revenue increased to $776–$783M (from $772–$779M) and adjusted EBITDA to $170–$175M (from $165–$170M); Q2’25 guided to $191–$195M revenue and $41–$44M adjusted EBITDA . Management also raised FY25 subscription revenue growth outlook to at least 15.5% from at least 15% .
  • Free cash flow was a standout at $37.8M, aided by favorable invoicing timing (one large customer switching to annual payment); CFO cautioned Q2 FCF will dip but H2 should exceed H1 with >85% FY26 FCF conversion unchanged .

What Went Well and What Went Wrong

What Went Well

  • Bookings and renewals quality: five Tier 1/Enterprise deals across digital banking, relationship pricing, risk & fraud, Helix; renewals with three of the ten largest customers. CEO: “significant renewals and expansion activity” with “robust pipeline” .
  • Margin and mix: non-GAAP gross margin advanced to 57.9% on higher-margin subscription mix; subscription revenue reached 81% of total and grew 18% y/y .
  • Cash generation: record free cash flow of $37.8M with stronger-than-typical seasonality; cash, equivalents and investments ended at $486M .

What Went Wrong

  • Services softness: services and other revenue declined 7% y/y as professional services demand remained pressured; management continues to lean into subscription mix .
  • Q2 FCF cadence: CFO flagged Q2 free cash flow step-down due to Q1 invoicing pull-forward; reinforces seasonality/working-capital variability despite strong annual conversion .
  • Macro caution persists: management acknowledged general industry “nervousness,” though pipeline/top-of-funnel remained solid; no explicit EPS guidance provided, relying on revenue and adjusted EBITDA .

Financial Results

Core P&L and Cash Metrics

MetricQ1 2024Q4 2024Q1 2025
Revenue ($M)$165.5 $183.0 $189.7
GAAP Diluted EPS ($)$(0.23) $0.00 $0.07
GAAP Gross Margin (%)49.7% 52.6% 53.2%
Non-GAAP Gross Margin (%)54.9% 57.4% 57.9%
Adjusted EBITDA ($M)$25.2 $37.6 $40.7
Free Cash Flow ($M)$6.0 —$37.8

Results vs. S&P Global Consensus (Q1 2025)

MetricActualConsensusBeat/(Miss)
Revenue ($M)$189.7 $186.5*+$3.2
Primary EPS ($)$0.50*$0.48*+$0.02

Values marked with * retrieved from S&P Global.

Revenue Mix & Recurring Metrics

KPIQ3 2024Q4 2024Q1 2025
Subscription ARR ($M)$654.6 $682.0 $702.4
Total ARR ($M)——$847.0
Backlog (RPO, $B)>$2.0 ~$2.2 ~$2.3
Subscription % of Revenue——81%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q2 2025—$191–$195 New
Adjusted EBITDA ($M)Q2 2025—$41–$44 New
Revenue ($M)FY 2025$772–$779 $776–$783 Raised
Adjusted EBITDA ($M)FY 2025$165–$170 $170–$175 Raised
Subscription Revenue Growth (YoY)FY 2025≥15% ≥15.5% Raised 50 bps

Notes: Company guides revenue and adjusted EBITDA; no EPS guidance. Non-GAAP definitions per company methodology .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Bookings/renewalsQ3: 6 Enterprise/Tier 1 deals; strong cross-sell . Q4: best bookings quarter of year; record renewals .5 Enterprise/Tier 1 deals; 3 top-10 customer renewals .Sustained strength
Mix & marginsQ3: non-GAAP GM 56.0% . Q4: non-GAAP GM 57.4% .Non-GAAP GM 57.9%; subscription 81% of revenue .Improving
Fraud/risk solutionsGaining traction with top banks (ongoing) .Expansion at Top 50 bank; fraud prioritized; Alloy partnership (Jan) .Increasing focus
Deposit/Commercial focusOngoing differentiation in commercial suite .Credit unions upmarket into SMB/Commercial; deposit gathering remains tailwind .Steady to positive
Cloud migration2026 step-up to margins anticipated (discussed prior frameworks).Public cloud migration to drive bigger GM step-up in 2026 .On track
Macro/tariffsQ4 macro watch, resilience narrative .Macro “nervousness” but pipeline solid; tariffs not changing priorities .Monitored

Management Commentary

  • CEO (press release): “significant renewals and expansion activity… breadth of our customer base… robust pipeline and strong renewal opportunity ahead” .
  • CFO (press release): “revenue and adjusted EBITDA results exceeding the high-end of our guidance” and confidence in profitable growth strategy .
  • CFO (call): “subscription revenue… ended the quarter at 81%… services and other revenues declined by 7% y/y” and record free cash flow, with invoicing timing benefit .
  • CFO on margins: pricing/packaging, cost efficiency, and 2026 public cloud migration underpin path to 60%+ GM .

Notable quotes:

  • “Fraud mitigation is a top priority for our customers… growing demand we’re seeing with best-in-class fraud solutions” – CEO .
  • “We are raising our full year revenue… and adjusted EBITDA guidance” – CFO .
  • “There was… an anomaly… one very large customer switch from a monthly cadence to an annual payment… collected at the end of the first quarter” – CFO on FCF timing .

Q&A Highlights

  • Fraud and pipeline: Broad-based fraud demand across net-new and expansions; greenfield to pursue with added products and partners (e.g., Alloy) .
  • Renewals cadence/terms: 2025–26 renewal opportunity count similar to 2023–24; durations/terms “typical,” with strong renewal economics across portfolio .
  • Macro and customer priorities: Customers cautious but not changing priorities; digital experience, fraud control, and relationship pricing remain top focus areas .
  • Margin trajectory: Continued progress via pricing/value capture and efficiency; larger step-up expected in 2026 post cloud migration .
  • Cash flow cadence: Q1 FCF boosted by invoicing shift; expect Q2 lower, H2 > H1; maintaining high EBITDA-to-FCF conversion .

Estimates Context

  • Q1 2025 beats: Revenue $189.7M vs $186.5M*; Primary EPS $0.50* vs $0.48* .
  • Q4 2024 also beat: Revenue $183.0M vs $180.0M*; Primary EPS $0.48* vs $0.47* .
  • Q2 2025 outlook vs Street: Guide $191–$195M broadly brackets consensus ~$193.7M*; company does not guide EPS (Street at ~$0.53*) .
  • Implications: Models may need higher subscription revenue run-rate/margins (mix shift), slightly lower services revenue, and updated FCF cadence assumptions given Q1 pull-forward .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat with improving mix: Higher subscription mix (81%) and rising non-GAAP gross margin (57.9%) support durable margin expansion and reduced volatility .
  • Bookings engine remains strong: Enterprise/Tier 1 and renewal momentum sustained; backlog now ~$2.3B (+20% y/y), supporting multi-quarter visibility .
  • Guidance higher: FY25 revenue and adjusted EBITDA both raised; subscription growth floor nudged up to ≥15.5%—a constructive signal on execution confidence .
  • Fraud solutions as a structural tailwind: Elevated demand evidenced by Top 50 bank expansion and Alloy partnership; positions Q2 well in a high-priority spend category .
  • FCF conversion intact despite Q1 anomaly: Expect near-term cadence variability but stronger H2; balance sheet optionality improves, supporting selective M&A and continued investment .
  • Medium-term margin catalyst: Public cloud migration expected to drive a more material gross margin step-up in 2026, reinforcing multi-year operating leverage thesis .
  • Watch items: Services softness and macro “nervousness” warrant monitoring; however, pipeline and renewal sets remain solid, and current guidance already embeds execution confidence .