Q2 Holdings, Inc.

Good afternoon. My name is Sarah and I will be your conference operator today. At this time I would like to welcome everyone to the Q2 Holdings fourth quarter and full year 2023 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session and if you have a question during this time please press star 1. I would now like to turn the call over to Josh Yankovich, Investor Relations. Sir, you may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for our fourth quarter and full year 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 Kurt 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, among other things, 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 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 annual report on Form 10-K for the full year 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 the 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 will 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 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 8K filed 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 fourth quarter and full year results and highlights from across the business. I'll then hand the call over to Jonathan to discuss our strategy and provide updates on our emerging businesses. David will then discuss our financial results, share guidance for the first quarter and full year, and provide updated financial targets for the next three years. In the fourth quarter, we continued to execute at the high end of our financial expectations. generating non-GAAP revenue of $162.2 million, up 11% year-over-year and 5% sequentially. We also generated adjusted EBITDA of $23.2 million, representing 14.3% of non-GAAP revenue, an improvement of more than 850 basis points of adjusted EBITDA margin over the prior year quarter. We closed out 2023 with outstanding sales execution in the fourth quarter. demonstrated by a record total bookings performance that was over 75% higher than our previous all-time high for a single quarter. Sequentially, we added a record $269 million in total backlog and approximately $47 million in subscription annualized recurring revenue, or subscription ARR, and we signed our two largest deals in company history. The largest deal was a digital banking platform win with a top 10 credit union. This was a retail opportunity, and to win a deal of this magnitude in the credit union space highlights the strength and differentiation of our retail solutions. The second largest deal in company history was a net new relationship pricing win with a top four U.S. bank. With the addition of this customer, seven of the top 15 North American banks now utilize our relationship pricing solutions. In addition to these record deals, our sales success from the quarter was broad, covering a strong mix of net new and expansion deals with financial institutions of all sizes across our target segments. The fourth quarter sales performance concluded the most impressive sales year in company history, and I'd like to take a few minutes to recap the full year. In looking back at 2023, the macroeconomic environment ultimately created a tailwind for our sales efforts. Financial institutions rapidly shifted their focus to attracting and growing deposits, which we believe contributed to one of the strongest demand environments we've seen in 20 years. And the strength of our product portfolio puts us in an advantageous position to capitalize on these market dynamics. We believe we're the only digital banking provider with best-in-class retail, small business, and commercial solutions on a single platform that's proven to help financial institutions grow deposits. Our sales teams executed on the strong demand and product market fit, making 2023 our biggest bookings year ever, not only in terms of net new deals, but also in cross-sales and renewal. We signed 17 total Tier 1 and Enterprise deals in the year, with four of them among our top 10 deals of all time in terms of contracted ARR. We had a number of marquee relationship pricing wins, particularly with Tier 1 and Enterprise institutions. And in addition to our success upmarket, we won retail, small business, and commercial digital banking deals across tier two and three segments as well, which have long been the bread and butter of our digital banking business. On the product innovation front, one of the biggest themes in our industry and in our customer conversations in 2023 was the discussion around new AI advancements and how they might impact financial services. We've been using machine learning in our products for almost 15 years, helping our customers drive better fraud prevention, marketing, and operational efficiency. Going forward, we intend to keep AI as a core tenant of our innovation strategy, whether by developing and partnering around new AI-powered products or using AI to enhance our existing product portfolio. In addition, we already have internal use cases for our employees leveraging AI, which has the potential to further enhance our operational efficiency. We believe that financial institutions are going to expect their vendors to have a comprehensive and compliant approach to AI, and that with our deep domain expertise, we're positioned to lead the way in delivering innovative solutions that anticipate the evolving demands of the industry and help our customers be more efficient and effective. Last but not least, 2023 was a year in which we made considerable progress on improved profitability. By increasing our focus on higher margin subscription revenue opportunities and continuing to execute on cost efficiencies across the business, we drove nearly 600 basis points of adjusted EBITDA improvement for the full year while delivering an exceptional customer experience, continued product innovation, and maintaining an award-winning culture. This record sales performance, our broad and differentiated product portfolio, as well as the rapid progress on our profitable growth initiatives, all demonstrate the strength of our business model and give me confidence in our trajectory looking ahead to 2024 and beyond. With that, I'll hand it over to Jonathan to discuss our strategy and updates on our emerging businesses.