Q2 Holdings, Inc.

Good morning. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings second quarter 2020 financial results that have been placed on mute to prevent any background noise. After the speaker's remarks, if you need to ask a question during the session, you'll need to press star 1 on your telephone keypad. We ask that you please limit yourself. I would now like to turn the call over to Josh Yankovich, Investor Relations.

Thank you, operators, for joining us for our second quarter 2020 conference call. With me on the call today is Matt Flake, our CEO, and Jennifer Harris, our CFO. This call contains forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of Q2 Holdings. Actual results may differ materially from those contemplated by these forward-looking statements, and we can give no assurance that such expectations or any of our important factors that could cause are included in our periodic report filed with the SEC, including our most recent quarterly report on Form 10Q and subsequent filings, and the press release distributed yesterday afternoon regarding the financial results we will discuss today. Forward-looking statements that we make on this call are based on assumptions only as of the day discussed. Investors should not assume that these statements will remain operative at a later time, and we undertake no obligation to update any such forward-looking statements discussed in this call. Also, unless otherwise stated, all financial measures discussed on this call will be on a non-GAAP basis, a discussion of why we use non-GAAP financial measures and a reconciliation of the non-GAAP measures included in our press release, which may be found on the investor relations section of our website. Let me now turn the call over to Matt.

Thanks, Josh, and thanks to everyone for joining the call today. On today's call, I'll start by providing a recap of our second quarter performance, followed by an update on our outlook for the third quarter and remainder of the year in the midst of the COVID-19 environment. In the second quarter, we generated non-GAAP revenue of $98.9 million, up 27% year over year. As a result of our success delivering our solutions and the accelerative impacts of COVID, we also added over 900,000 users in the second quarter, bringing us to 16.3 million total registered users at quarter end, a 20% increase year over year. I'll start by unpacking that user growth and providing some color on how it was and wasn't impacted by the COVID-19 environment. The 900,000 users we added in the quarter came through a combination of new customer installs and organic growth consisting of new user adoption and some M&A activity. We had a tremendous quarter of delivering new customers, and I'm extremely encouraged by our ability to deliver the platform in an all remote environment. Given the current operating environment, our teams and our customers had to rally together to execute the slate of planned installs during the quarter. And I want to thank them for their diligence in executing these critical projects in the face of unprecedented circumstances. The delivery team's performance from the quarter is reassuring. Thank you for joining us. Thank you for joining us today. in part connected to the government's distribution of PPP loans and stimulus checks. However, through the months of May and June, organic user growth trended towards historical levels. Digital usage continues to increase for specific products, particularly in areas that are most affected by branch closures and restricted physical access. For example, mobile remote deposit transactions were up sharply during the quarter. roughly 30% higher than the previous quarter, a much higher growth percentage when compared to the modest quarter over quarter growth we typically see. While product specific adoption trends may not necessarily meaningfully impact Q2 from a financial perspective in any particular period, I do believe trends like these can help Q2 and our customers by driving deeper digital engagement and creating stickiness with account holders. As the situation continues to unfold, We're working closely with our customers and monitoring digital adoption trends in order to anticipate the impacts of COVID on our customers and our systems and solution roadmap in the coming quarters and long term. On the sales side, we had a solid second quarter overall given the general turbulence caused by the COVID-19 pandemic. As we discussed in our last call, we adjusted back our second quarter sales expectations in light of the impact of COVID on our customers. and while our overall sales performance during the second quarter fell short of our pre-COVID targets, we did outperform our COVID-adjusted expectations, thanks in part to a very positive renewal and cross-sale quarter and a surge of PPP-related lending deals. Our backlog growth was largely driven by a strong quarter of renewal activity in which renewal bookings dollars were approximately doubled out of the first quarter of 2020. I'm encouraged by the renewal activity in the quarter given the circumstances. I believe it signals our customers' strong confidence in our products, roadmap, and partnership together, and is a positive indicator of the market opportunity in front of us. On the net new side, we did see some slowdown in decision making, particularly in the enterprise space, but our momentum from the first quarter, the strength of our solution offerings, and good sales execution in a difficult environment carried us through to a solid performance across the aggregate business in the second quarter. Our digital banking team had some key net new wins, including two tier ones. In recent quarters, I've talked about the cross-pollination effect we've begun to see as a result of our expanded portfolio, in which customers of one product line look to Q2 to provide solutions for other areas of their business.