Q2 Holdings (QTWO) Q3 2026 Earnings Call Transcript

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DATE

Wednesday, Oct. 28, 2026

CALL PARTICIPANTS

• Investor Relations – Josh Yankovich
• Chief Executive Officer – Matthew Flake
• Chief Financial Officer – Jonathan A. Price

TAKEAWAYS

• Revenue — $225.8 million, growing 12% year over year driven by new customer go-lives and expansion deals within the existing customer base.
• Subscription Revenue — $188.2 million, increasing 14% year over year and representing 83% of total revenue.
• Adjusted EBITDA — $67.8 million, representing 30% of revenue and a 39% increase compared to $48.8 million in the third quarter of 2025.
• Total Annualized Recurring Revenue (ARR) — $989 million, up 11% year over year from $888 million at the end of the prior-year period.
• Subscription ARR — $846 million, growing 13.5% year over year from $745 million due to new customer wins and existing customer expansions.
• Backlog — $2.8 billion, representing 10% year-over-year growth from $2.5 billion.
• Non-GAAP Gross Margin — 62.6%, up 470 basis points year over year reflecting cloud migration benefits and a shift toward higher-margin subscription revenue.
• Free Cash Flow — $55 million, increasing 48% year over year and representing approximately 81% of adjusted EBITDA.
• GAAP Net Income — $33.2 million, up from $15 million in the prior-year quarter.
• Tier 1 and Enterprise Wins — seven contracts signed during the quarter, including a net new agreement with a Tier 1 credit union for commercial banking.
• Large Credit Union Deal — an approximately $3 billion credit union represented the largest win of the quarter in terms of contracted recurring revenue.
• Commercial Banking Expansion — an approximately $10 billion credit union selected the commercial digital banking platform to support its treasury and business banking ambitions.
• User Activity Monitoring (UAM) — nearly 20 financial institutions signed into the early adopter program for this AI-driven solution, double management’s initial expectations.
• Share Repurchases — $39 million, representing approximately 600,000 shares repurchased at an average price of $61.27 during the third quarter.
• Remaining Authorization — $336.1 million, available for share repurchases as of Sept. 30, 2026.
• Full-Year Revenue Guidance — $888 million to $892 million, representing approximately 12% growth.
• Full-Year Adjusted EBITDA Guidance — $253 million to $256 million, representing approximately 28.6% of revenue at the midpoint.
• Fourth Quarter Revenue Guidance — $226 million to $230 million, which would represent year-over-year growth of 9% to 10%.
• Fourth Quarter Adjusted EBITDA Guidance — $62.4 million to $65.4 million, representing 28% of revenue for the period.
• 2027 Subscription Revenue Outlook — 12.5% to 13% growth, with expected adjusted EBITDA margin expansion of 150 to 200 basis points.
• Rule of 40 Performance — approximately a Rule of 43 expected by the end of 2026, calculated as subscription revenue growth plus adjusted EBITDA margin.
• Cash and Investments — $123 million, up from $106 million at the end of the second quarter of 2026.
• Headcount — 2,549 employees as reported in company profiles.

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RISKS

• Price stated, “Consistent with prior expectations, we continue to expect pressure in our more discretionary services revenue,” indicating that non-subscription revenue is forecast to decline slightly year over year in the fourth quarter.

SUMMARY

Q2 Holdings, Inc. (QTWO -0.32%) reported third quarter results that reached record levels for gross margin and adjusted EBITDA margin while announcing a leadership transition. Management reported that the organization is scaling its profitable growth strategy through a focus on subscription-based revenue, which now comprises over 80% of total revenue. The company is prioritizing artificial intelligence initiatives centered on three priorities: institutional protection, banker efficiency, and developer speed. The transition to a co-CEO leadership structure is intended to provide continuity as the organization continues to invest in its product road map and expands its presence in the commercial banking and credit union sectors.

• Management appointed Jonathan A. Price as co-CEO. CEO Flake stated, “Jonathan will lead alongside me, and I will continue to serve as president and chairman of the board.”
• The company is targeting significant growth in fraud product penetration. Flake noted that current adoption is between 30% to 35% and stated, “I think that number could probably shoot to 60% to 70% over the next two to three years.”
• Credit unions are increasingly focusing on commercial banking opportunities. Flake reported that these institutions are selecting the Q2 platform for its ability to offer business-specific tools like treasury fulfillment and direct ERP integration on a single system.
• The company plans to move AI offerings to general availability. Flake stated management is “on pace to begin making these offerings generally available over the next 90 days,” referring to Q2 code, Q2 assistant, and user activity monitor.
• Q2 Holdings remains debt free and maintains flexibility for capital allocation. Price reported, “We remain focused on maintaining a healthy balance sheet and preserving flexibility to support organic investment, inorganic opportunities as they arise, and a disciplined approach to share repurchases.”

INDUSTRY GLOSSARY

• ACH: Automated Clearing House, an electronic network for financial transactions in the United States.
• ARR: Annualized Recurring Revenue, a metric that represents the annual value of all active recurring subscription contracts.
• BaaS: Banking as a Service, a model in which licensed banks integrate their digital banking services directly into the products of non-bank businesses.
• Innovation Studio: A Q2 platform that allows third-party developers and partners to build and integrate fintech solutions directly into the Q2 digital banking environment.
• RPO: Remaining Performance Obligations, representing the total amount of contracted revenue that has not yet been recognized.
• SDK: Software Development Kit, a set of tools that allows developers to create custom applications for a specific platform.
• SentriX: A Q2 product line focused on advanced security analytics and fraud prevention.
• Tier 1 / Enterprise: Classifications for large financial institutions based on asset size, typically those with billions of dollars in total assets.
• UAM: User Activity Monitoring, an AI-driven security solution designed to track and validate user behaviors to prevent account takeovers.

Full Conference Call Transcript

Operator: Good afternoon. My name is Kevin and I will be your conference operator today. At this time, I would like to we

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