Q2 Holdings, Inc.

session if you'd like to ask a question please press the star the number one on your telephone keypad i would now like to turn the call over to josh yankovic investor relations sir please begin thank you operator good afternoon everyone and thank you for joining us for our third quarter 2023 conference call with me on the call today are matt flake our ceo david mihawk our cfo jonathan price our executive vice president of strategy and emerging businesses and Kirk Coleman, our president, who will join us for the Q&A portion of the call. This call contains forward-looking statements that are subject to significant risks and uncertainties, including with respect to our expectations for the future operating and financial performance of Q2 Holdings and for the financial services industry. 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 forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in our periodic reports filed with the SEC, copies of which may be found on the investor relations section of our website, including our quarterly report on Form 10-Q for the third quarter of 2023 and subsequent filings, and the press release distributed this 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 date discussed. Investors should not assume that these statements will remain operative at a later time, and we undertake no obligations 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 to the most comparable GAAP measures is included in our press release, which may be found on the Investor Relations section of our website, and in our form of 8K file today with the SEC. We have also published additional materials related to today's results on our investor relations website. Let me now turn the call over to Matt.

Thanks, Josh. I'll start today's call by sharing our third quarter results and highlights from across the business. I'll then hand it over to Jonathan to discuss a few highlights from our emerging businesses. David will then discuss our financial results and guidance in more detail. In the third quarter, we generated non-GAAP revenue of $155 million. up 7% year over year. We also continued to deliver on our commitment to improve non-GAAP profitability in the quarter, with adjusted EBITDA of $19.7 million or 12.7% of revenue, an improvement of over 500 basis points of adjusted EBITDA margin over the prior year quarter. In addition to the financial results, we had broad sales success in the quarter. As we've highlighted for several quarters, the rising interest rate environment and events in the banking industry have led financial institutions to prioritize attracting, retaining, and growing deposits. That focus on deposits is leading financial institutions of all sizes to reevaluate their customer-facing technology, which is translating into a strong pipeline for digital banking. And we believe our digital banking portfolio is uniquely equipped to help financial institutions grow deposits and drive profitability. from industry-leading retail and commercial solutions that help our customers win valuable deposit accounts to Q2 Innovation Studio, which helps drive customer engagement, retention, and non-interest fee income, and was once again a key driver in every digital banking win from the quarter. This focus on deposits drove a number of key deals in the third quarter. On the digital banking side, we had a broad mix of retail and commercial deals across our market segments, including two of the top 10 largest digital banking deals in company history. We also signed meaningful expansion deals with multiple enterprise and Tier 1 customers for our relationship pricing solutions. One of the highlights was a net new digital banking deal with a top 20 U.S. bank that has more than $200 billion in assets. The bank selected our digital banking platform to serve their critical small business and commercial customers. This is a significant win on several levels. In terms of annualized recurring revenue, this customer is among our top 10 largest digital banking deals of all time. Historically, banks of this size have relied on a mix of homegrown technologies for digital banking. But the current focus on growing deposits is pushing financial institutions of every size to invest in best-in-class technology, improving their user experience, and delivering innovation faster than they can on their own. And the depth of our commercial product set, along with our proven ability to deliver, implement, and support commercial products at the enterprise level, helped us earn our way into and ultimately win this significant opportunity. The second deal I want to highlight is a comprehensive platform deal with a $20 billion bank that was also a top 10 deal in company history in terms of annualized recurring revenue. This is another example of a large bank that felt it was critical to upgrade to a technology platform that would allow them to move fast and differentiate themselves in the current economic environment. And in this case, they selected us to be the single platform to serve their entire customer base across retail, small business, and commercial. In addition to contributing to strong demand for our solutions, some of the changes in our customers' operating environments are creating new opportunities for innovation. We recently announced two new product innovations designed to address these opportunities for our customers. First, we've talked a lot about the focus on deposits. Today, many of our customers are evaluating new, creative ways to differentiate themselves, reach new customers beyond their traditional markets, and acquire and support retail deposit relationships profitably. To help address these challenges, we recently announced Q2 Fabric, a turnkey direct bank offering which combines our digital banking front end with a lightweight core of Helix. This is a great example of our ability to innovate and quickly respond to new market dynamics. And Jonathan will provide more detail on Q2 Fabric shortly. Another area of focus for our customers today is artificial intelligence. And to help them capitalize on that opportunity, we recently announced the Andy Copilot platform, a copilot solution purpose-built for bankers. We originally built Andy in 2017 as a chat-driven assistant within our relationship pricing solution. Today, it is used by more than 29,000 bankers across 150 financial institutions where it delivers bank, client, and deal-specific pricing recommendations in real time as commercial bankers design their deals. For AI to deliver real value, it has to be powered by data and knowledge that is specific to our industry and customers. And via the Andy Copilot platform, we will combine our vast amounts of digital banking and lending data with a proven copilot that can deliver the right information to the right banker at the right time, helping make our customers more effective and efficient across a number of critical use cases within the Q2 product portfolio and beyond. While Andy has been in production inside of relationship pricing for years, both Q2 Fabric and the Andy Copilot platform are early in their product life cycles. Over the coming months, we'll be partnering with early adopters to further develop and refine both solutions. and we look forward to sharing relevant updates on future calls. We have always been an innovation-driven company, and both Q2 Fabric and the Andy Copilot platform demonstrate our ability to leverage and develop our unique technology assets to solve real, timely challenges our customers face in the market. With that, I'll hand the call over to Jonathan to share a few highlights from our Q2 Innovation Studio and Helix teams.

Thanks, Matt. I'll start with Q2 Innovation Studio, which had a particularly strong quarter driven in part by the tremendous engagement and activity at Connect, our annual client conference. We had record adoption in terms of our customers partnering with FinTechs. Almost 100 new partnership deals in the quarter, representing 40% growth over our previous best quarter of adoption. The benefit of this adoption is that it can lead to a flywheel effect. The more partners and customers use Innovation Studio, the stronger the ecosystem becomes, which in turn can drive meaningful customer outcomes, increase retention, and differentiate Q2 in the digital banking sales process. As Matt mentioned, Q2 Innovation Studio has become an essential part of our value proposition and was once again a key driver in all of our digital banking wins from the quarter. We're particularly excited that the top 20 bank we signed plans to make Q2 Innovation Studio a core component of its digital strategy. where it will use Innovation Studio to deliver innovative, fee-generating products to small business and commercial customers. Shifting to Helix, we had a few noteworthy highlights I'd like to share. First, we had a meaningful cross-sell with one of our largest clients. We worked with this customer to develop a new piece of functionality for the Helix platform that will allow them to have full control over transaction authorization to drive a better customer experience and improved fraud management. The addition of this new product will drive an immediate lift in the monthly recurring revenue associated with this partnership, and it also gives us a new piece of functionality that differentiates Helix from other embedded finance providers and can be cross-sold into other key Helix customers and prospects. Second, we had a meaningful customer go live in the quarter with a bank that launched a new digital brand powered by the Helix Core technology. This customer made the decision to launch a new brand in order to attract digital-first consumers outside of its traditional market with targeted deposit products as a way to drive new customer acquisition and grow deposits. This is a trend we're seeing more and more, and it's exactly the use case that led us to develop Q2 Fabric. Given the current priority on deposits, many financial institutions are looking to launch new digital-only products. like stand-alone high-yield savings accounts that they can use to attract and profitably serve retail depositors. To execute this strategy, financial institutions require a lightweight, flexible core technology that allows them to launch easily, onboard new customers seamlessly, and then profitably serve and grow those retail relationships over time. The Helix Core platform is built to serve this purpose. It operates in real time. It's designed for digital-only customers, and it can support retail deposit accounts at a fraction of the cost of traditional cores. And it is a proven, highly scalable technology that supports more than 15 million end users today. Through Q2 Fabric, we will use the Helix Core, combined with our best-in-class digital banking front end, to give financial institutions a turnkey, full-stack solution to easily launch their own digital deposit products. It is very early innings for Q2 Fabric, but we believe it's an exciting new way to take QIX to market with financial institutions. And we believe that over the long term, Q2 Fabric has tremendous potential to help our customers differentiate themselves, diversify their strategies, and grow deposits. With that, I'll hand the call over to David to discuss our financial results from the quarter.