Q1 2024 Earnings Summary
- Significant expansion opportunities within existing Tier 1 customer base: With only 40% of their 220 customers over $5 billion in assets using both retail and commercial solutions, Q2 has a substantial opportunity to cross-sell and deepen relationships, leveraging their single platform advantage.
- Strong demand and sales momentum in Tier 2 and Tier 3 banks: Q2 signed more Tier 2 and Tier 3 banks in the recent quarter than in any quarter last year, indicating robust demand in these segments and potential for accelerated revenue recognition due to faster implementation cycles.
- Driving innovation and customer value through Q2 Innovation Studio: Q2's fintech partner ecosystem contributed to 100% of deals in the quarter, highlighting its role in winning new business and expanding relationships with existing customers, thereby enhancing their competitive position. ,
- High proportion of ARR not yet live: As of the first quarter, 15% of total Annualized Recurring Revenue (ARR) is not yet live, which is the second-highest percentage in years. This suggests potential delays in revenue recognition and possible implementation challenges.
- Delayed revenue realization from new bookings: The majority of net new bookings will not impact revenue until next year due to implementation cycles ranging from 9 to 15 months. This could result in slower near-term revenue growth.
- Increased operating expenses due to required headcount investment: To support the high bookings momentum, the company needs to invest in headcount for implementation and sales, which could impact operating expenses and margins. Additionally, they are exploring but not yet committed to utilizing external partners for implementations, potentially limiting scalability.
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ARR Not Yet Live
Q: Update on visibility of ARR not live?
A: David reported that the percentage of ARR not yet live decreased from 18% last quarter to 15%. This 15% is still the second highest in years, providing great visibility and supporting long-term projections. -
Headcount Investments
Q: Any plans for headcount investments?
A: David stated they will continue investing in implementation headcount due to booking momentum but are also focusing on efficiencies. Sales and marketing have become more efficient, but additional resources may be needed to support account growth. -
Expansion Opportunities
Q: Which customer sets are most actionable near term?
A: Matt indicated that the 90 Tier 1 banks already using either retail or commercial banking are most actionable for cross-sell opportunities. Significant demand exists as banks seek efficiencies and better digital experiences. -
Investments in AI
Q: Are there areas for deeper investment?
A: Matt emphasized ongoing investments in user experience, commercial banking, fraud data, and AI. Kirk added they see AI opportunities in internal efficiency, embedding in products, and new product development, leveraging their large datasets. -
Monetizing Innovation Studio
Q: How is Innovation Studio monetized?
A: Jonathan explained they have revenue-sharing agreements with over 160 partners, sharing revenue from deals made through the marketplace. Partners gain access to 450+ financial institutions and 23 million end users. -
Renewal Cadence
Q: How does renewal cadence look for 2024?
A: David noted that, similar to past years, most renewals will occur in Q4, providing the biggest opportunity. Q3 is relatively pressured from a renewal standpoint. -
Competitive Advantage
Q: What's the opportunity with banks using separate systems?
A: Matt highlighted that banks not on a single platform face inefficiencies. By unifying systems with Q2's platform, banks can improve customer experience and operational efficiency, driving demand. -
Scaling Pipeline
Q: Position on scaling with current pipeline?
A: David is confident in scaling costs to drive revenue growth. While investing in implementation resources, they're also exploring efficiencies and possibly utilizing partners to improve cost structure. -
Tier 2 and Tier 3 Demand
Q: What's driving Tier 2 and Tier 3 bank demand?
A: Matt observed increased demand from Tier 2 and Tier 3 banks seeking technology to compete with larger banks. Their system helps these banks acquire, retain, and grow deposits, leading to significant opportunities. -
ARR Impact on Revenue
Q: Will bookings affect current year revenue?
A: David clarified that net new bookings will see little revenue this year due to implementation cycles of 9 to 15 months, while cross-sell expansions, with cycles of 4 to 9 months, may contribute more in the second half.