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QH

Q2 Holdings, Inc. (QTWO)·Q4 2024 Earnings Summary

Executive Summary

  • Q2 Holdings delivered a strong Q4 2024: revenue $183.0M (+13% YoY, +5% QoQ), GAAP EPS $0.00, non-GAAP gross margin 57.4%, and adjusted EBITDA $37.6M with margin 20.6%; results exceeded the high end of prior Q4 guidance for both revenue and EBITDA. Management raised its long-term framework (subscription growth target to ~15%, EBITDA margin expansion to ~360 bps, FCF conversion target to >85% by 2026).
  • Bookings strength was broad-based with seven Tier 1/Enterprise contracts, record cross-sell and renewals; subscription ARR rose to $682M (+15% YoY) and total ARR to $824M (+12% YoY). Backlog increased $189M QoQ to ~$2.2B (+21% YoY).
  • Guidance: Q1 2025 revenue $184–$188M; adjusted EBITDA $36–$39M. FY 2025 revenue $772–$779M; adjusted EBITDA $165–$170M. Management emphasized visibility from robust pipeline and backlog.
  • Call drivers: expansion momentum (commercial digital banking cross-sell), relationship pricing traction (including Wells Fargo), fraud solutions adoption, and disciplined renewal pricing; professional services remain a headwind and are expected to decline further.
  • Catalysts: raised multi-year targets, Tier 1 wins across retail/commercial, Wells Fargo launch on relationship pricing, continued fraud solution demand, and strong FCF conversion (85% of EBITDA in 2024).

What Went Well and What Went Wrong

What Went Well

  • Record renewal and cross-sell quarter; bookings from renewals up 80% YoY; seven Tier 1/Enterprise deals; strongest bookings quarter of the year. “We posted our best bookings quarter of the year and second best in company history.”
  • Expansion opportunity validated: >60 Tier 1 institutions using commercial solutions; ~50 Tier 1 digital banking customers yet to adopt commercial—highlighting a large cross-sell runway.
  • Fraud solutions momentum: “Fraud is one of the most pressing topics… our solutions helped mitigate more attempted fraud… one of the fastest-growing solution sets.”

What Went Wrong

  • Professional services declined ~11% YoY in 2024 and expected to remain pressured; mix shift away from discretionary consulting and “premier” services persists.
  • Services pressure weighed on total ARR versus subscription ARR growth; management does not assume a rebound in discretionary services near term.
  • Churn remains a watch item despite improving: total revenue churn 4.4% (2024), digital banking churn “well below 5%”; management continues disciplined renewal pricing amid competitive dynamics.

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$172.890 $175.021 $183.045
GAAP EPS ($USD)($0.22) ($0.20) $0.00
GAAP Gross Margin %50.2% 50.9% 52.6%
Non-GAAP Gross Margin %55.7% 56.0% 57.4%
Adjusted EBITDA ($USD Millions)$29.871 $32.610 $37.624
Adjusted EBITDA Margin %17.3% 18.6% 20.6%
Wall St. Consensus (Revenue)N/A (S&P Global retrieval unavailable)N/A (S&P Global retrieval unavailable)N/A (S&P Global retrieval unavailable)
Wall St. Consensus (EPS)N/A (S&P Global retrieval unavailable)N/A (S&P Global retrieval unavailable)N/A (S&P Global retrieval unavailable)

Notes: S&P Global consensus estimates were unavailable at the time of request due to API limits; values will be updated when accessible.

KPIs and Operating Metrics

KPIQ2 2024Q3 2024Q4 2024
Total ARR ($USD Millions)$783 $796 $824
Subscription ARR ($USD Millions)$633.9 $655 $682
Backlog (RPO) ($USD Billions)~$2.0 >$2.0 ~$2.2
Backlog Seq. Change ($USD Millions)+$38 +$78 +$189
Total Net Rev. Retention (TTM)——109%
Subscription Net Rev. Retention (TTM)——~114%
Revenue Churn (FY)——4.4%
Free Cash Flow ($USD Millions, Quarter)$28.8 $35.0 $37.0
Cash, Cash Equivalents & Investments ($USD Millions, EoQ)$372 $408 $447
GAAP Net Income ($USD Millions, Quarter)($13.060) ($11.797) $0.164

Highlights vs Guidance

  • Q4 actual revenue $183.0M vs prior guidance high $181.1M: bold beat. Adjusted EBITDA $37.6M vs prior guidance high $36.3M: bold beat.

Drivers and Why

  • QoQ revenue growth driven by subscription go-lives and additional solutions; sequential revenue benefited from increased one-time professional services in Q4.
  • Gross margin expansion (both QoQ and YoY) driven by higher subscription mix and delivery/support efficiencies.
  • Strong FCF conversion (85% of EBITDA) attributed to profitability focus, streamlined operations, and working capital management.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q1 2025—$184.0–$188.0 New
Adjusted EBITDA ($USD Millions)Q1 2025—$36.0–$39.0 New
Revenue ($USD Millions)FY 2025—$772.0–$779.0 New
Adjusted EBITDA ($USD Millions)FY 2025—$165.0–$170.0 New
Subscription Revenue Growth (Avg)2024–2026~14% ~15% Raised
Avg Annual Adjusted EBITDA Margin Expansion2024–2026Prior lower range~360 bps Raised
FCF Conversion TargetFY 2026>70% >85% Raised
Q4 2024 Non-GAAP RevenueQ4 2024$178.1–$181.1 Actual $183.0 Beat
Q4 2024 Adjusted EBITDAQ4 2024$34.3–$36.3 Actual $37.6 Beat

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
AI initiatives (Andi Copilot, AWS)Connect showcased Andi Copilot beta; expanded AWS partnership to accelerate AI and fraud detection (Sentinel). Continued AI emphasis; leveraging AWS Bedrock/SageMaker; fraud tools cited as differentiator. Strengthening adoption and platform integration
Innovation StudioBookings more than doubled vs 2023; cited in most net new wins; >80% customer adoption. Key win driver again; “more than 90% of wins in 2024” referenced by CEO. Sustained momentum
Relationship Pricing (PrecisionLender)Top-5 largest RP deal; premium treasury pricing expansions; consistent demand. Wells Fargo launch; RP terminology clarified; broader cross-sell opportunity. Ongoing traction, enterprise validation
Commercial digital banking adoptionTier 2/3 suite wins; enterprise wins with Top 50 banks. 110 Tier 1 digital banking customers; ~60% only using one of retail/commercial—large cross-sell runway. Increasing cross-sell focus
Fraud and risk solutionsGrowing demand; check fraud rise; single-platform data advantage. One of fastest-growing solution sets; significant fraud mitigation in 2024. Elevated priority
Helix/BaaS & Symphonix (lending)Strategic Helix renewal; Symphonix rebrand to serve non-bank lenders. Helix opportunity shifting to FI-owned programs/core; regulatory scrutiny seen as moat for prepared banks. Repositioning under regulatory evolution
Macro/M&AExpect M&A to pick up; Q2 gained customers via bank acquisitions. Deregulation seen as tailwind for operating efficiency and M&A; potential demand uplift. Constructive backdrop
Services/Other revenueDeclines due to discretionary nature; expected to persist. Continued ~11% YoY decline; prudent approach to any rebound. Ongoing headwind

Management Commentary

  • “We delivered strong fourth-quarter results to cap off a great year… best bookings quarter of the year and second best in company history.” – Matt Flake, CEO.
  • “We surpassed the high end of our guidance for both revenue and adjusted EBITDA… updated our three-year framework to more ambitious targets.” – Jonathan Price, CFO.
  • “Fraud is one of the most pressing topics… our solutions helped mitigate more attempted fraud with our customers than ever before.” – Matt Flake.
  • “Today, we have more than 60 Tier 1 financial institutions that utilize our commercial digital banking solutions… approximately 50 Tier 1 customers yet to adopt these solutions.” – Matt Flake.

Q&A Highlights

  • Wells Fargo engagement: Relationship pricing (PrecisionLender) clarified; ~9 of the 15 largest banks in North America using PrecisionLender.
  • Pipeline mix: Balanced Tier 2/3 volume with expectation of larger enterprise deals in back half of 2025; steady Tier 1 activity.
  • TAM expansion to ~$20B: Growth drivers include fraud products, Helix/Fabric inside FI landscape, and commercial catalyst line.
  • Pricing power and margins: Premium for commercial offerings; ASPs slightly down due to mix; margin expansion expected to come from subscription mix, OpEx leverage, and cloud migration.
  • Free cash flow conversion: ~85% in 2024; driven by DSO performance, profitability, and process improvements; capex-light profile maintained.
  • Services outlook: Discretionary consulting remains pressured; no rebound assumed for 2025 near term; selective approach to any future growth.

Estimates Context

  • S&P Global consensus estimates for Q4 2024 revenue and EPS were unavailable at the time of request due to API limits; therefore, estimates comparisons are not shown. Future updates will default to S&P Global consensus.
  • Nonetheless, actual results exceeded management’s prior guidance ranges for Q4 revenue and adjusted EBITDA, indicating operational outperformance versus internal expectations.

Key Takeaways for Investors

  • Strong execution with broad-based bookings, record renewals (+80% YoY), and cross-sell underpinning ARR and backlog growth—supports 2025 guidance and multi-year target raises.
  • Margin trajectory improving: non-GAAP gross margin 57.4% and adjusted EBITDA margin 20.6% in Q4; mix shift to subscription and efficiency gains continue to drive expansion.
  • Commercial cross-sell runway: large installed base with many Tier 1 customers using only one of retail/commercial solutions—clear expansion vector in 2025.
  • Relationship pricing is a durable growth pillar with enterprise validation (Wells Fargo, Top 50 bank wins) and premium treasury pricing modules expanding scope beyond lending.
  • Fraud solutions are a secular demand driver; single-platform data advantage and machine learning tools (Centrix, Sentinel) differentiate customer outcomes.
  • Helix/Fabric positioned for FI-led BaaS programs amid regulatory tightening; Symphonix targets non-bank lenders globally—broadening total addressable market.
  • Near-term watch items: services revenue headwinds, competitive pricing dynamics in retail, and execution on larger enterprise implementations; overall pipeline and backlog provide visibility.