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QH

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

Executive Summary

  • Revenue of $195.1M grew 13% YoY and 3% QoQ; adjusted EBITDA of $45.8M and non-GAAP gross margin of 57.5% both exceeded guidance, with Q2 bookings highlighted by six Tier 1 wins and backlog rising to ~$2.4B .
  • Against S&P Global consensus, Q2 revenue beat by ~$1.4M while Primary EPS (S&P “Primary EPS”) was modestly below; FY 2025 Street revenue consensus ($791.5M*) sits above updated company guidance ($783–$788M), suggesting possible estimate recalibration (beat on the quarter, but FY guide < Street)*.
  • Management raised FY 2025 guidance (revenue, adjusted EBITDA), increased subscription revenue growth outlook (≥16%), and lifted free cash flow conversion target to 90%; Q3 2025 outlook calls for revenue of $196–$200M and adjusted EBITDA of $44–$47M .
  • Catalysts: expanding fraud/risk demand and Innovation Studio adoption (85%+ of digital banking customers), improving profitability, and strong FCF conversion; watch cloud migration costs (near-term gross margin headwind, 2026 tailwind) and Q2 churn concentration .

What Went Well and What Went Wrong

What Went Well

  • Beat and raise: “both revenue and adjusted EBITDA results above the high end of our guidance,” and raised FY guidance across revenue, adjusted EBITDA, and FCF conversion .
  • Tier 1 momentum: six Tier 1 contracts (new and expansions), with ARR growth (subscription ARR up 13% YoY to $716M) and backlog up 21% YoY to ~$2.4B .
  • Fraud/risk traction and AI: Enhanced Payee Match showcased; customers reported 50%+ reduction in account takeover fraud and significant support deflection via AI chat (Innovation Studio) .

What Went Wrong

  • EPS miss vs S&P “Primary EPS” consensus: Q2 Primary EPS actual 0.518 vs 0.535 estimate (modest shortfall, despite revenue beat)*.
  • Non-GAAP gross margin dipped sequentially (57.5% vs 57.9% in Q1) due to cloud migration cost timing; management expects margins roughly flat in Q3 and to expand in Q4 .
  • Churn concentration: subscription ARR growth pressured by higher-than-typical churn localized in Q2 (linked in part to customer M&A), though management expects lower churn in 2H .

Financial Results

Core P&L metrics (GAAP and Non-GAAP)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$183.0 $189.7 $195.1
GAAP Diluted EPS ($)$0.00 $0.07 $0.18
GAAP Gross Margin %52.6% 53.2% 53.6%
Non-GAAP Gross Margin %57.4% 57.9% 57.5%
Adjusted EBITDA ($USD Millions)$37.6 $40.7 $45.8
Adjusted EBITDA Margin %20.6% 21.5% 23.5%
GAAP Net Income ($USD Millions)$0.2 $4.8 $11.8

KPIs and cash metrics

KPIQ4 2024Q1 2025Q2 2025
Subscription ARR ($USD Millions)$682 $702 $716
Total ARR ($USD Millions)$824 $847 $861
Backlog (Remaining Performance Obligations) ($USD Billions)~$2.2 ~$2.3 ~$2.4
Free Cash Flow ($USD Millions)$37 $37.8 $42
Cash, Cash Equivalents & Investments ($USD Millions)$447 $486 $532

Q2 2025 Actuals vs S&P Global Consensus

MetricConsensusActualSurprise
Revenue ($USD Millions)$193.7*$195.1 +$1.4
Primary EPS ($)0.5347*0.5183*-0.0164

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total RevenueFY 2025$776–$783M $783–$788M Raised
Adjusted EBITDAFY 2025$170–$175M $177–$181M Raised
Subscription Revenue GrowthFY 2025≥15.5% (prior outlook) ≥16% Raised
Free Cash Flow ConversionFY 2025≥85% (prior) 90% Raised
Total RevenueQ3 2025N/A$196–$200M New
Adjusted EBITDAQ3 2025N/A$44–$47M New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Fraud/Risk Solutions & AIFastest-growing solution set; strong demand; pricing across relationships and AI-based prevention Enhanced Payee Match highlighted; top cross-sold product; 50%+ ATO reduction and 65%+ support deflection via AI (Innovation Studio) Strengthening
Innovation Studio AdoptionMore than 400 of ~450 live customers using it; cited in >90% of wins in 2024 85%+ of digital banking customers using it; revenue contribution growing at high margin Broadening
Cloud Migration2026 gross margin step-up anticipated Q2 sequential gross margin dip from cost timing; flat in Q3, expansion in Q4; 2026 benefits reaffirmed Near-term cost, LT tailwind
ARR/Backlog & ChurnStrong renewals; backlog +$189M QoQ in Q4; sub ARR +15% YoY Sub ARR $716M (+13% YoY); backlog ~$2.4B; churn concentrated in Q2, easing in 2H Solid with transient churn
Deposits/Commercial FocusBanks prioritizing deposits, commercial stickiness; Tier 2/3 wins Continued focus on deposits; commercial expansion and ERP integration product announced Sustained priority
Helix & RegulatoryBAAS/embedded finance scrutiny; disciplined M&A stance Stable regulatory environment; green shoots with high-quality operators; FI-led BAAS model Stabilizing

Management Commentary

  • CEO: “We delivered strong financial results…Revenue grew 13% YoY…Our bookings…were highlighted by six Tier 1 wins…We also saw solid bookings results for our risk and fraud solutions” .
  • CFO: “Gross margin was 57.5%…slightly below…57.9%…driven by increased costs including costs related to our cloud migration…we now expect full year gross margin expansion of at least 200 bps…we are raising our full year revenue to $783–$788M…adjusted EBITDA to $177–$181M…and free cash flow conversion to 90%” .
  • CEO (Innovation Studio/AI): “Enhanced Payee Match…uses artificial intelligence to detect and prevent check fraud…customers…deflecting 65%+ of support traffic using AI-powered chat” .

Q&A Highlights

  • Fraud penetration and displacement: penetration is “strong” across native platform, Centrix, and partners; mix of displacing legacy vendors and net-new capabilities via Innovation Studio .
  • Churn and ARR: churn concentrated in Q2 (including M&A), expected lower in 2H; sequential subs ARR adds would have been in-line excluding churn .
  • Gross margin and cloud: slight Q2 sequential GM decline from pulled-forward cloud costs; lighter costs and subs mix to aid Q4; 2026 margin step-up expected .
  • Innovation Studio monetization: high-margin revenue; adoption expanding, cited in net-new wins; long runway from single-product to multi-product adoption .
  • Helix/crypto/stablecoin: opportunity more than threat; FI-led BAAS models with operational rigor create openings for Helix .

Estimates Context

  • Q2 2025: revenue beat vs consensus ($195.1M actual vs $193.7M*), Primary EPS slight miss (0.5183* actual vs 0.5347* estimate). Values retrieved from S&P Global.*
  • FY 2025: Street revenue consensus $791.5M* exceeds updated guidance ($783–$788M), implying potential modest downward estimate revisions; FY Primary EPS consensus 2.379* (company guided adjusted EBITDA up, but no EPS guide). Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Beat-and-raise quarter supports near-term momentum; watch for Q3 delivery against $196–$200M revenue and $44–$47M adjusted EBITDA guidance .
  • Fraud/risk and Innovation Studio are durable growth drivers with high-margin economics; continued adoption can offset services softness .
  • Cloud migration cost timing weighed on Q2 margins but sets up 4Q expansion and 2026 gross margin tailwind; constructive for medium-term profitability .
  • Transient Q2 churn (including M&A) pressured subs ARR growth; management expects churn to normalize in 2H, underpinning subscription growth ≥16% in FY 2025 .
  • Strong FCF conversion (raised to 90%) and cash/investments of $532M enhance capital allocation flexibility; M&A remains selective/discipline-driven .
  • Near-term trading: revenue beat and raised FY guide are positives; caution on EPS optics vs S&P “Primary EPS” miss and FY revenue guide below Street may drive estimate adjustments*.
  • Medium-term thesis: expanding Tier 1 footprint, commercial platform cross-sell, fraud/AI differentiation, and cloud migration benefits support sustained margin expansion and cash generation .

Values retrieved from S&P Global.*