Q2 Holdings Inc

Overview

Q2 is a leading provider of digital banking and lending solutions to financial institutions, financial technology companies, or FinTechs, and alternative finance companies, or Alt-FIs, wanting to incorporate banking into their customer engagement and servicing strategies. Our solutions transform the ways in which financial institutions and other financial services providers engage with account holders and end users, or End Users. Our solutions include a broad and deep portfolio of digital banking solutions; digital lending and relationship pricing solutions; an open technology platform, the Q2 Innovation Studio, which is a portfolio of technologies and programs which can be leveraged to design, develop, and distribute innovative products, services, features, and integrations by enabling a partnership ecosystem on Q2's digital banking platform; and Helix, a comprehensive banking as a service, or BaaS, solution which also serves as a cloud-native core, both of which enable innovative companies and financial institutions to integrate unique banking products and services into their offerings. We purpose-build our platforms and solutions to enable success for our customers and technology partners by allowing them to digitize their operations and offerings, differentiate their digital brands, integrate traditional and emerging financial services, and ultimately, enhance their End-User acquisition, engagement and retention and improve their operational efficiencies and profitability.

We have deep domain expertise in developing and delivering advanced digital solutions designed to help our customers and technology partners compete in the complex and heavily regulated financial services industry. Over 19 years ago, Q2 began by providing digital banking solutions to regional and community financial institutions, or RCFIs. We have rapidly grown since then through a combination of broad market acceptance of our award-winning solutions and relentless innovation, investment and acquisitions. Our collection of solutions now spans digital banking, digital lending and relationship pricing, digital account opening, regulatory and compliance, account switching, data-driven sales enablement, spending insights and portfolio management, and we serve account holders and borrowers across retail, small to medium business, or SMB, and commercial segments, in addition to our open platform solutions and BaaS offerings. As of December 31, 2023, we had more than 1,300 financial institution customers using one or more of our solutions, including more than 40% of the top 100 U.S. Banks and more than 40% of the top 100 U.S. Credit Unions, based on total assets. As of December 31, 2023, we had 450 installed digital banking platform customers, and those customers had approximately 22.0 million account holders registered on our digital banking platform. During 2023, End Users logged into our digital banking platform over 5 billion times and executed over $2.7 trillion in financial transactions. While we remain focused on our founding mission of building stronger and more diverse communities by strengthening their financial institutions and continue to generate a substantial majority of our revenue from sales of our digital banking platform, we intend to draw on our broad product portfolio and deep domain expertise to both further penetrate the digital banking market and drive meaningful expansion activity within our robust customer base across financial services.

The financial services industry is experiencing significant transformation driven by the growing demand within financial institutions to digitize their operations and offerings, as well as the rise of FinTechs and Alt-FIs, which are reshaping End User expectations for more innovative and engaging digital financial experiences. These shifts are leading to new roles and interdependencies among financial institutions, FinTechs and Alt-FIs, necessitating new technology, partnerships, and business models. We believe that lasting value creation in financial services will be achieved by those companies that are capable of supporting and enhancing this convergence. We have developed a comprehensive suite of solutions to accelerate and optimize this convergence, ranging from digitizing entire banks to facilitating partnerships between financial institutions, FinTechs, and Alt-FIs.

We believe this creates an expanded market opportunity for our business, which we have been thoughtfully evolving for several years. We have continuously invested in expanding and improving our digital banking platform since its introduction in 2005. Additionally, over the past several years we have acquired or developed new solutions and additional functionality that serve a broader range of needs of financial institutions as well as the needs of FinTechs and Alt-FIs. Our integrated, end-to-end collection of solutions includes retail, SMB and commercial banking, regulatory and compliance, digital lending and relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others. We believe our solutions afford us a distinct competitive advantage, servicing retail, SMB and commercial needs and reflect the culmination of years of strategic development and innovation which in turn has solidified our competitive market position. We believe our expanded solution offerings and the continued growth of our customer base and market opportunity have increased the addressable market for our solutions to greater than $17.0 billion.

Our solutions utilize a software-as-a-service, or SaaS, delivery model, designed to scale with our customers as they grow their business, add End Users on our solutions and expand the breadth of digital services and solutions they offer. On average, Q2 digital banking platform customers have historically grown contracted revenue by approximately 42% within 36 months of implementation. Our SaaS delivery model is also designed to reduce the cost and complexity of implementing, maintaining and enhancing the digital services and solutions our customers provide to their End Users.

The effective delivery and management of advanced digital solutions in the complex and heavily regulated financial services industry requires significant resources, personnel and expertise. We provide digital solutions that are designed to be highly configurable, scalable and adaptable to the specific needs of our customers. We design and develop our solutions with an open platform approach intended to provide comprehensive integration among our solution offerings and our customers' internal and third-party systems. This integrated approach allows our customers to deliver unified and robust financial experiences across digital channels. Our solutions provide our customers the flexibility to configure their digital services in a manner that is consistent with each customer's specific offerings, workflows, processes and controls. Our solutions also allow our customers to personalize the digital experiences they deliver to their End Users by extending their individual services and brand requirements across digital channels. Our solutions are designed to comply with the stringent security and technical regulations applicable to financial institutions and financial services providers and to safeguard our customers' data and that of their End Users.

We believe that financial services providers are best served by a broad integrated portfolio of digital solutions that provide rapid, flexible and comprehensive integration with internal and third-party solutions allowing them to provide modern, intuitive, advanced and regulatory-compliant digital banking and lending services. We also believe that the breadth and depth of our solution offerings and customer base, our open and flexible platform approach, our position as a leading provider of digital banking solutions to a large network of financial institutions, and our expertise in delivering new, advanced, innovative and regulatory-compliant digital banking and lending solutions uniquely position us to capitalize on the evolving needs and challenges within the financial services industry, enabling us to effectively innovate and adapt our offerings to meet the ever-changing demands of our customers and their End Users. We intend to increase investments in technology innovation and software development as we enhance our solutions and platforms and increase or expand the number of solutions that we offer.

We primarily sell our solutions through our direct sales organization and the related revenues are recognized over the terms of our customer agreements. The initial term of our digital banking platform agreements averages over five years. Our digital banking platform revenues generally increase as our customers buy more solutions from us and increase the number of End Users utilizing our solutions and as those users increase their number of transactions on our solutions. The structure and terms of our digital lending and relationship pricing arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements. The structure and terms of our Helix arrangements with FinTechs vary, but typically involve relatively lower contracted minimum revenues and instead emphasize usage-based revenue, with such revenue recognized as it is incurred.

We have achieved high growth since our inception, including the past three years. We had total revenues of $624.6 million, $565.7 million and $498.7 million in 2023, 2022 and 2021, respectively. We have invested, and intend to continue to invest, to grow our business by adding delivery and support resources aligned with our growth, developing and acquiring new solutions, enhancing our existing solutions and technical infrastructure and expanding our sales and marketing activities. We incurred net losses of $65.4 million, $109.0 million and $112.7 million in 2023, 2022 and 2021, respectively.

We were incorporated in March 2005 in the state of Delaware under the name CBG Holdings, Inc. We changed our name to Q2 Holdings, Inc. in March 2013. We are headquartered in Austin, Texas, and our principal executive offices are located at 10355 Pecan Park Boulevard, Austin, Texas 78729. Our telephone number is (833) 444-3469.

Industry Background

The financial services industry is intensely competitive and rapidly changing, marked by a dynamic landscape where financial institutions and other financial services providers will have new roles and interdependencies and require new technology, partnerships, and business models to create differentiation and lasting value.

The ubiquity of mobile and tablet devices and the proliferation and adoption of new, innovative financial experiences offered by FinTechs and other financial services providers are dramatically changing the financial services market.

The ubiquity of mobile and tablet devices and End Users' increasing expectations for innovative digital services have driven increases in the number of financial services providers, greater fragmentation of the financial services market and a broadening set of new and innovative digital financial services. End Users, spanning retail, SMB and commercial, expect to transact and engage digitally with financial services providers anytime, anywhere and on any device, and seamlessly across devices. Financial services providers similarly must be able to digitally manage End Users' financial experiences anytime, anywhere and on any device, with a focus towards improving operating efficiency and enhancing End-User acquisition, engagement and retention. FinTechs and Alt-FIs recognize that incorporating banking into their strategy is an opportunity to leverage the trust that their customers place in them, drive deeper engagement with those customers and generate additional revenue. These changes in the financial services market and in End-User and customer expectations create challenges and opportunities for financial institutions as well as other financial services providers. Financial institutions and other financial services providers are seeking to address these challenges and opportunities by providing a broadening set of new and innovative digital financial services, solutions and experiences which better align with the expectations of End Users' experience through digital channels.

Substantial investment in prior years in FinTechs and the innovation they bring to the market are increasing End-User demand and expectations for new, more engaging and meaningful digital financial experiences. FinTechs and other financial services providers are nimble, focused on innovation and are less constrained than financial institutions by legacy technology solutions, physical branch locations and regulation. By unbundling traditional banking services and delivering them through new, innovative and compelling experiences, FinTechs are making finance more accessible, engaging and easier for End Users. The innovative offerings of FinTechs are having an outsized impact on the financial services industry, creating substantial competitive pressure on financial institutions to offer similarly compelling financial experiences. Accordingly, financial institutions are increasingly seeking to incorporate best-in-class FinTech solutions into their offerings and operations.

FinTechs and other financial services providers face substantial regulatory hurdles and technology dependencies in incorporating banking into their solutions. The financial services offered by FinTechs and other financial services providers often leverage core banking functions, creating an interdependency between financial institutions and FinTechs and other financial services providers. Financial institutions of all sizes provide two fundamental banking functions among others - they hold NCUA-insured or FDIC-insured deposits and they transfer money. Providing these critical banking functions generally requires a federal or state banking charter, as well as specialized expertise and infrastructure, and subjects the provider to complex regulatory oversight by various authorities. As an example, electronic payment transactions in the United States, other than wire transfers, are conducted as automated clearinghouse, or ACH, transactions, which settle through the Federal Reserve System in most cases, and generally, only financial institutions can obtain the necessary master account with a Federal Reserve Bank to settle transactions. These laws and regulations have existed for decades, are extremely complex, constantly evolving, and require financial institutions to implement and maintain complex and costly operating policies, procedures and technical infrastructure to protect End Users, their deposits and their personal information. These regulatory constraints provide an incentive for FinTechs and other financial services providers to partner with financial institutions rather than making the significant investments in expertise and infrastructure necessary to obtain a banking charter and otherwise become regulatory-compliant.

The confluence of these challenges and opportunities faced by financial institutions and other financial services providers has created an environment in which cooperation, rather than competition, can be the optimal solution. To more deeply engage with their End Users, financial institutions are increasingly seeking to incorporate best-in-class FinTech experiences into their digital offerings, and other financial services providers are increasingly incorporating banking functionality into their offerings. This convergence of factors and interdependency between financial institutions and other financial service providers represents a dynamic landscape in financial services in which financial institutions, FinTechs, and Alt-FIs will have new roles and interdependencies, and will require new technology, new partnerships and new business models.

Security is paramount for digital financial services

The risks of theft and fraud have always existed in banking and financial services. However, as the adoption, use, and breadth of digital financial services offerings has increased, fraud and theft in digital channels has grown substantially. The methods by which criminals seek to commit fraud are constantly changing, requiring financial services providers and their technology providers to continually modify their security protocols. In addition, safeguarding the funds and information of financial service providers and their End Users becomes increasingly complex as digital financial services grow and extend across new channels, devices, and services not previously contemplated. Successfully securing the digital financial services of financial institutions, FinTechs and other financial services providers requires experience, constant vigilance, and continuous investment to stay informed and guard against these ever-changing threats.

Digital financial services are highly regulated

Financial services providers and their solutions are subject to extensive and complex regulations and oversight by federal, state and other regulatory authorities. These laws and regulations are constantly evolving and affect the conduct of financial service providers' operations and, as a result, the business of their technology providers. Compliance of digital financial solutions with these regulatory requirements depends on several factors, including functionality and design, the classification of the financial service provider and its services, and the way the financial service provider and its End Users use the solutions. To ensure compliance with these laws, technology providers and financial service providers may be required to implement operating policies and procedures to protect the privacy and security of their, the financial service providers' and their End Users' information, and to undergo periodic audits and examinations. Maintaining such regulatory compliance becomes increasingly complex as digital financial services grow and extend across new channels, devices, and services not previously contemplated.

Digital financial services are complex and often have limitations

The ubiquity of mobile and tablet devices and continued proliferation of digital solutions offered through open development platforms makes it increasingly difficult to provide a consistent, intuitive and personalized End-User experience and requires digital solutions to support new and rapidly changing mobile operating systems and device types. The technical and operational complexities of delivering integrated digital solutions across multiple operating systems, devices, channels, and complex functionality increase the difficulty of providing a consistent, intuitive and personalized End-User experience. Aging or increasingly complex solutions can create the following challenges for financial services providers:

•integrating applications and systems from multiple vendors may increase costs and time-to-market;

•managing relationships with multiple vendors can be time consuming and require a greater investment in business development and support resources;

•building, maintaining and upgrading regulatory-compliant solutions and infrastructure can be expensive and time-consuming and require special expertise that can be hard to find and retain;

•operating, supporting and upgrading systems from multiple vendors can be difficult, costly and less secure and limit the ability to provide a unified End-User experience or comprehensive view of End-User behavior;

•partnering between financial institutions and other financial services providers and innovating and delivering new solutions can be difficult and cost-prohibitive when integration with dated legacy infrastructure is required; and

•training End Users and internal personnel on the use of different point systems can be challenging, time-consuming and costly.

The use of multiple point solutions for digital financial services can require End Users to maintain different login credentials across digital channels and manage different systems. Additionally, the disjointed nature of the underlying workflows, data and terminology caused by the implementation of multiple solutions can lead to decreased End-User adoption, retention and satisfaction. End Users' adoption, retention and satisfaction can also be adversely impacted by the dated End User interfaces of older legacy systems.

The market for digital financial services is significant

We have continuously invested in expanding and improving our digital banking platform since we introduced it in 2005, and we intend to continue investing organically and to selectively pursue acquisitions of and strategic investments in technologies that will strengthen and expand the features and functionality of our solutions and provide access to new customers and new markets. Additionally, over the past several years we have acquired or developed new solutions and additional functionality that serve a broader range of needs of financial institutions as well as the needs of FinTechs and Alt-FIs. Our integrated, end-to-end collection of solutions includes retail, SMB and commercial banking, regulatory and compliance, digital lending and relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others.

As of December 31, 2023, we had more than 1,300 financial institution customers using one or more of our solutions, including more than 40% of the top 100 U.S. Banks and more than 40% of the top 100 U.S. Credit Unions, based on total assets. Our financial institution customers span from RCFIs to global enterprise banks, demonstrating that our portfolio of solutions gives us access to the full spectrum of financial institutions. We market our digital lending and relationship pricing, fraud detection, risk assessment and compliance solutions to all federally-insured financial institutions on a standalone basis, or in combination with our digital banking platform. We market our digital banking platform primarily to RCFIs. To date, a substantial majority of our revenues continue to result from sales of our digital banking platform to U.S. based RCFIs. We define RCFIs as federally-insured banks and credit unions with less than $100 billion in assets, which according to data compiled by BauerFinancial as of September 30, 2023, consisted of approximately 9,301 financial institutions with combined assets of $8.9 trillion, representing approximately 35% of the aggregate assets held by the 9,334 total federally-insured financial institutions. RCFIs remain critical to our mission of building stronger and more diverse communities by strengthening their financial institutions. RCFIs have historically sought to differentiate themselves by providing local, personalized banking services that are responsive to the changing needs and circumstances of their communities. Many RCFIs are locally owned and obtain deposits and make digital lending decisions on a local basis. RCFIs account for a large portion of small business loans, helping local businesses create jobs and drive economic growth in the communities they serve. RCFIs seek to develop strong, lasting relationships with their End Users and can serve as centers of commerce and influence in their communities.

The FinTech and Alt-FI markets consist of thousands of financial services providers globally seeking to provide End Users with new and innovative financial services, experiences and solutions. Our Q2 Innovation Studio offerings, which we market to financial institutions and FinTechs, allow our financial institution customers and other technology partners to integrate financial services to our digital banking platform, allowing financial institutions to quickly and efficiently incorporate the integrated solutions into their offerings and operations. We market Helix to FinTechs, Alt-FIs and financial institutions wishing to incorporate unique banking products and services into their offerings. We also market our Cloud Lending, or CL, digital lending platform and discrete elements of our digital banking platform to FinTechs and Alt-FIs globally.

Based on our estimates of the number of target financial institutions for our digital banking solutions and our internal assumptions as to the number and types of digital accounts they serve, the prices for our solutions and the number of transactions processed, we believe that the market for our digital banking platform, including retail, SMB and commercial banking, regulatory and compliance, as well as digital account opening, account switching, risk management, portfolio management solutions and Q2 Innovation Studio is greater than $11.0 billion. Based on our estimate of the number of target customers of digital lending and relationship pricing services and our internal assumptions as to the number of End Users they serve and the prices for our solutions, we believe that the market for our digital lending and relationship pricing solutions, including the borrower portal, origination, underwriting, servicing, collections, actionable insights, coaching, negotiation, relationship pricing and data-driven sales enablement modules, is greater than $4.0 billion. Based on our estimates of the number of target financial institutions and FinTechs for our Helix solutions and our internal assumptions as to the number of End Users they serve, the prices for our solutions and the number of transactions processed, we believe the market for our Helix solutions including open platform solutions and BaaS, is greater than $2.0 billion. In the aggregate, we believe that the worldwide market for our solutions is greater than $17.0 billion.

Our Solutions

We are a leading provider of digital banking and lending solutions that transform the ways in which financial institutions and other financial services providers engage with account holders and End Users. We offer our solutions to financial institutions, FinTechs and Alt-FIs wishing to incorporate banking into their customer engagement and servicing strategies. Our integrated, end-to-end collection of solutions and services are designed to enable End Users and customers to engage with and manage financial experiences anytime, anywhere, and from any device, across all devices. We purpose-build our platforms and solutions to enable success for our customers and technology partners by allowing them to digitize their operations and offerings, differentiate their digital brands, integrate traditional and emerging financial services, and ultimately, enhance their End-User acquisition, engagement and retention and improve their operational efficiencies and profitability.

Key Solution Offerings

Our portfolio of digital solutions includes the following key offerings:

•Digital Banking Platform: Our end-to-end digital banking platform supports our financial institution customers in their delivery of retail, SMB and commercial functionalities across digital channels through a single technology platform. Our open digital banking platform now spans onboarding, banking and a vast set of integrations to third-party financial services across the retail, SMB and commercial segments, and provides our financial institution customers with the tools, knowledge, and access necessary to: monitor and optimize End-User acquisition, engagement and retention; customize and extend the platform; and, improve operational efficiencies. In addition, we offer a suite of risk and fraud solutions designed to assist our customers in their effort to safeguard the financial service offerings against fraudulent activities. Our risk and fraud solutions include a streamlined dispute management solution, assisting customers with Regulation E compliance, and including optional fraud alerts functionality for enhanced security. Our risk and fraud solutions also include fraud monitoring and risk reporting capabilities, including real-time validation features to help mitigate fraud. Our risk and fraud solutions serve a critical function in assisting our customers with fraud detection and mitigation and underscore our commitment to delivering innovative technologies that prioritize security and integrity in financial operations. We offer some of the solutions included in our digital banking platform on a standalone basis to financial institutions as well as Alt-FIs and FinTechs.

•Q2 Innovation Studio: Our application program interface, or API, based and software development kit, or SDK, based open technology platform allows our financial institution customers and other technology partners to develop unique extensions of and integrations to our digital banking platform, allowing financial institutions to quickly and easily deploy customized experiences and the latest financial services expected by End Users.

•Lending and Relationship Pricing: Our end-to-end digital lending and relationship pricing portfolio allows our financial institution, FinTech and Alt-FI customers to simplify the End-User experiences of borrowers, accelerate loan decisioning, and reduce operational inefficiencies through digitization and automation of the traditional loan application and underwriting process. Our digital lending and relationship pricing portfolio also provides commercial relationship managers with actionable data-driven insights into an individual commercial End User's entire portfolio, assessing the overall portfolio and individual relationships, highlighting potential concerns and identifying opportunities, and ultimately helping the relationship manager to more effectively price, negotiate and close both commercial loans and depository relationships.

•Helix: Our cloud-native, real-time core processing platform combines the services and functionality necessary for companies and financial institutions to incorporate unique banking services into their digital offerings. Our BaaS Helix solutions allow FinTech and Alt-FI customers to easily and efficiently incorporate highly personalized financial experiences within their digital offerings without having to independently meet the stringent regulatory and technical requirements applicable to financial institutions and their banking services. As a core, Helix allows financial institutions to launch unique and personalized digital banking services.

Key Benefits

Our solutions provide the following key benefits to our customers and their End Users:

•Enhanced and more frequent engagement with End Users: Our solutions provide our customers with a comprehensive view of End-User engagement and activity across devices and channels. The insights made possible by a comprehensive view enable an enhanced, personalized End-User experience, real-time risk and fraud assessment and other analytic features that improve the function and security of our solutions. The breadth of our solutions and quality of the End-User experience they provide enable our customers to increase the frequency and effectiveness of their interactions with End Users. We believe the frequency and ease of these interactions can strengthen the relationships between End Users and our customers and help our customers better serve their End Users through a more comprehensive understanding of their behavior and activities. In particular, we believe that engaging with commercial End Users involves unique challenges, and by enabling commercial relationship managers with actionable data-driven insights into commercial End-User relationships, they can better serve their commercial End Users, and increase overall performance.

•Drive End-User loyalty: We believe our customers are able to drive End-User loyalty by increasing their level and quality of End-User engagement. Our customers are able to tailor our solutions by offering individually relevant functionality as well as branded, localized End-User experiences. Our digital banking platform and lending and relationship pricing solutions provide our financial institution customers with a comprehensive view of operational and End-User activity across channels and devices allowing them to look for opportunities to improve End-User engagement and grow their End-User relationships with targeted offerings based on specific behavior. We believe this further strengthens End-User loyalty by enabling our customers to engage End Users through customized and End-User-friendly digital experiences.

•Vast and flexible integrations: Our highly flexible set of integration tools enables the rapid integration of third-party applications and data sources with our digital banking platform. These integration tools connect with a wide variety of third-party applications, allowing us to seamlessly integrate with our customers' internal and third-party systems and services. We currently maintain over 1,000 integrations to a broad variety of financial services technology partners.

•More effective marketing of products and services: Our customers' marketing of their new and existing products and services through our solutions can be frequent, timely, targeted and data-driven. The ease and availability of communications within digital channels also make it easier for End Users to find information about products and services. Our solutions also enable a simplified End-User experience, which can help improve sales of products and services.

•SaaS delivery model: We developed our solutions to be cloud-based. Our customers generally subscribe and pay for their use of our solutions over time, and our solutions do not require our customers to install any significant technical infrastructure. We host the majority of our digital banking platform for our digital banking and Q2 Innovation Studio customers in our own data centers. Our digital lending and relationship pricing, Helix and some of our digital banking platform solutions are hosted with industry leading public cloud service providers. Our SaaS delivery model can reduce the total cost of ownership of our customers by providing the development, implementation, integration, maintenance, monitoring and support of our cloud-based solutions on a subscription basis. Our solutions are designed to support the rapid addition of new services as well as the introduction of new devices and digital channels. As a result, our customers can easily scale the use of our solutions with their needs as they add End Users and expand the digital services and solutions they offer.

•Regulatory compliance: Our solutions leverage our deep domain expertise and the significant investments we have made in the design and development of our technology infrastructure to meet the stringent security and technical requirements of financial institutions and financial services providers. Customers who use our solutions can satisfy security and technical compliance obligations by relying on the security programs and regulatory certification of our technology infrastructure. By doing so, our customers can mitigate or eliminate the costs associated with building, maintaining and upgrading a compliant environment on their own.

•Real-time security: We employ multi-layered controls to help secure our customers' and End Users' information. Each layer addresses specific areas of possible fraud or data vulnerability. Our customers can use transactional-based controls to reduce fraudulent transactions by allowing them to adjust configurations such as transaction values, payment windows or account suspension. Our digital banking platform customers who leverage our Q2 Sentinel product are able to identify and block suspected fraudulent activity in real-time at the application layer, based on machine-learning and behavioral analytics, and notify operations staff and End Users of suspect transactions prior to consummation of a transaction. This approach is designed to mitigate and more effectively manage the security risks in financial services and helps protect our customers' reputations. We continue to invest in the resiliency and security of our platform and solutions. We believe our security posture, encompassing a private cloud consisting of active-active data centers combined with a state-of-the-art distributed cloud leveraging multiple public cloud vendors differentiates us in the markets we serve.

•Intuitive design: We design and test the features and End-User experience of our solutions to be optimized for touch-based devices and then extend that design to other digital channels. This design process and our broad feature offerings enable our solutions to deliver a modern, unified End-User experience across digital channels.

•Delivery of robust digital financial services across multiple channels: Our solutions enable our customers to deliver robust and integrated digital financial services to their End Users who increasingly expect and appreciate the ability to manage their financial experiences anytime, anywhere and on any device. Through a single log-in and consistent workflow, End Users are able to seamlessly conduct consumer and commercial transactions across digital channels and devices.

Our Business Strengths

We are highly committed to our mission of building stronger and more diverse communities by strengthening their financial institutions, and support it by focusing on designing, developing and acquiring new, innovative digital banking and other financial services solutions to meet changing End-User expectations. We believe we are well positioned to connect and serve financial institutions, FinTechs and other financial services providers as they transform the ways in which they engage, either independently or in partnership, with End Users globally:

•Our purpose-built digital banking platform leads the RCFI digital banking market: We built our award winning digital banking platform to address unique challenges that financial institutions face in providing digital banking services. Our digital banking platform reduces the inefficiencies of traditional point-to-point integration strategies and replaces multiple management consoles with a single unified view of the rules, rights and security involved with operating seamlessly across digital channels. Our digital banking solutions enable our financial institution customers to provide a compelling, unified End-User experience to consumer and commercial End Users using a single login anywhere, anytime and on any device. We believe our deep domain experience as a leading provider of digital banking solutions positions us well to provide new, innovative digital banking and other financial services solutions to address the evolving needs and challenges within the financial services industry.

•We have acquired and developed solutions to better serve our financial institution customers and a broader set of global financial service providers including FinTechs and Alt-FIs: Over the past several years, we have expanded our portfolio to include offerings such as digital lending and relationship pricing, Q2 Innovation Studio, Helix, digital account opening, account switching, risk management, data-driven sales enablement, spending insights and portfolio management solutions. As the financial services landscape has evolved to become more digitized and open, we have strived to ensure our customers can offer a broader range of digital services to their End Users.

•Our open technology platform accelerates innovation and enables a new technology partnership ecosystem: We are leveraging the strength of our digital banking platform and broad customer base to open our platform and create opportunities for mutually beneficial partnerships among financial institutions and other financial services providers. To accomplish this, we have opened our digital banking platform via the Q2 Innovation Studio, which makes it easy for financial institutions and other financial services providers to integrate additional functionality into our platform. Financial institutions can deploy their own development resources to supplement or customize their digital offerings and FinTechs and other digital solution providers can integrate their services with the Q2 digital banking platform. Financial institutions can then choose to incorporate these integrated services into their offerings, creating a new technology partnership ecosystem where financial institutions, FinTechs and other digital solution providers can cooperate, generating new revenue opportunities and enhancing End User engagement.

•We believe Helix serves the rapidly growing market of FinTechs and Alt-FIs incorporating banking into their digital offerings and is well positioned to address the needs of financial institutions looking to drive digital and core transformations: We have been investing in our Helix offerings for several years, and today our Helix platform supports many FinTechs and Alt-FIs, serving more than 15 million End Users. FinTechs and Alt-FIs recognize that incorporating banking into their strategy is an opportunity to leverage the trust that their customers place in them, driving deeper engagement with those customers all while generating additional revenue. As consumer expectations evolve and business needs grow, financial institutions are seeking highly flexible and customizable platforms that allow them to build differentiated financial services solutions, looking to grow their business through innovative technical collaborations, and focusing on automation and scalability to minimize operational burden on their business. We believe our Helix solutions were among the earliest of their type on the market and given the maturity and adoption of our Helix solutions to date, we believe we have a significant competitive advantage in meeting the unique needs of these FinTechs, Alt-FIs and financial institutions through the pairing of our Helix and Digital banking platform.

•We have a proven track record of providing digital solutions to financial services providers: Our founders and team have a track record of successfully delivering technology for financial services providers. We have deep domain expertise in financial services and community banking, which we utilize to develop and deliver our solutions and services to our customers. We have significant experience and the technical infrastructure to deliver solutions that are designed to comply with the stringent security and technical regulations applicable to financial institutions and financial services providers and to safeguard our customers' and their End Users' data.

•Our sales model is tailored to our different markets: The financial institution market is well defined and allows us to effectively focus our go-to-market strategy for our sales and marketing efforts. Utilizing the deep industry experience of our management and sales teams, we are able to leverage our relationships with leaders and influencers at many of our financial institution customers as valuable sources of reference and promotion. We have also developed actionable insights into our sales and marketing performance, enabling us to be efficient with our go-to-market investments. The markets for emerging financial services providers are relatively new, broad and continually evolving. As a result, we leverage our network of technology partners and insights from our experience with financial institution customers to effectively pursue these markets.

•We grow our customer relationships over time: Throughout customer relationships, we employ a structured strategy designed to inform, educate and enhance customer confidence and help our customers identify and implement additional solutions to acquire, engage and retain additional End Users.

•Our revenues are predictable: To date, a substantial majority of our revenues continue to result from sales of our digital banking platform to RCFIs. We generally recognize our revenues over the terms of our customer agreements. The initial term of our digital banking platform agreements averages over five years. Our long-term agreements and our high customer retention, as well as the growth over time in the number of End Users using our solutions, drive the recurring nature of our revenues and provide us with significant visibility into future revenues.

•Established financial stability: We generated cash flow from operations for our most recent full-year and expect to show continued improvement in cash flows from operations in the normal course of business over the long term. Given that some vendors we may compete with have not generated cash flow from operations, we believe our relative financial maturity is viewed as a strength by potential customers as they make their vendor selections. In addition, we feel that our ability to generate cash flow from operations affords us with opportunities to invest and pursue our growth strategy, which may not be as easy for companies who are not generating cash flows from operations.

•Our award-winning culture drives innovation and customer success: We believe our award-winning, innovation-focused culture and the location of our operations facilitate recruiting and retaining top development, integration and design talent. We are headquartered in Austin, Texas, which is a vibrant city that continues to attract an increasing number of young professionals and has close ties to leading research institutions. In each of the past 13 years, the Austin American-Statesman recognized us as one of Austin's "Top Places to Work." We believe our mission, combined with our focus on delivering leading-edge digital solutions, enables us to attract and retain top talent.

Our Growth Strategy

We believe we are well positioned to connect and serve financial institutions, FinTechs and other financial services providers as they transform the ways in which they engage, either independently or in partnership, with End Users globally and to capitalize on the evolving needs and challenges within the financial services industry. To accomplish this goal, we are pursuing the following growth strategies:

•Further penetrate our large market opportunity: Financial institutions are increasingly adopting cloud-based digital banking solutions. With the ubiquity of mobile and tablet devices and resulting proliferation of mobile digital solutions provided through their open developer platforms, End Users are increasingly engaging with financial experiences across a variety of digital channels. Over the past several years, in response to the increasing demand for innovative digital banking and other financial services, we have taken steps to expand our addressable market by acquiring and developing solutions that serve the needs of a broader, global set of financial services providers and their End Users. Through Q2 Innovation Studio, we have opened our digital banking platform, making it easy for financial institutions and other digital solution providers to integrate additional functionality to our platform. We believe that our expanded portfolio of solutions addresses a broader set of customer needs. We intend to further penetrate our large market opportunity and increase our number of financial institution and other financial services provider customers using our broad range of digital solutions through acquiring and developing additional solutions, investments in our sales and marketing organization and related activities.

•Grow revenues by expanding our relationships with existing customers: We believe there is significant opportunity to expand our relationships with existing customers by selling them additional solutions. Our broad portfolio of solutions gives us access to decision makers across our customers' organizations. Specifically, we sell distinct solutions targeted for purchase by roles such as head of risk, lending, finance, operations, branding and technology. Additionally, the initial term of our digital banking platform customer agreements averages over five years. The breadth of our portfolio of solutions and the duration of our typical initial digital banking platform arrangement provides us with the ability to better understand our customers' businesses, build trust with them and offer them new ways to acquire, engage and retain End Users. In addition, our financial institution customers grow their End User bases organically and through acquisitions of other financial institutions. Our revenues from existing customers continue to grow as they increase the number of End Users on our solutions and as the number of transactions these End Users perform on our solutions increases. Our investments in digital lending and relationship pricing, BaaS, digital account opening, account switching, open platform solutions, data-driven sales enablement, spending insights and portfolio management, and other innovative solutions will help our customers expand their relationships with us by allowing them to more efficiently sell and market additional services and solutions to their End Users.

•Relentlessly innovate to expand our solutions offerings and enhance our platform: We believe our history of innovation distinguishes us in the market, and we intend to continue to invest in our software development efforts and introduce new solutions that are largely informed by and aligned with the business objectives of our existing and new customers. We have rapidly grown through a combination of broad market acceptance of our award-winning solutions and relentless innovation, investment and acquisitions. Our portfolio of solutions now spans onboarding, digital banking and lending across the retail, SMB and commercial segments. Our integrated, end-to-end collection of solutions includes retail, SMB and commercial banking, regulatory and compliance, digital lending and relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others.

•Selectively pursue acquisitions and strategic investments: In addition to continuing to develop our solutions organically, we regularly evaluate strategic opportunities, such as our acquisitions of Centrix, Social Money, Unbill, Cloud Lending, Gro, PrecisionLender, ClickSWITCH and Sensibill. We anticipate that we will continue to selectively pursue acquisitions of and strategic investments in technologies that will strengthen and expand the features and functionality of our solutions and provide access to new customers and new markets.

The Q2 Solutions

We design and develop our solutions with a platform approach intended to provide comprehensive integration between our solution offerings and our customers' internal and third-party systems. This integrated approach allows our customers to deliver a unified and robust financial experience across digital channels. We leverage the benefits of our open platform to provide our customers the following solutions:

Digital Banking Platform

Our digital banking platform allows financial institutions to offer a comprehensive suite of retail, SMB and commercial digital banking services to their End Users through a single technology platform. Our open platform architecture, deep integration with other systems and the multi-tenant aspects of our infrastructure, enable us to develop digital banking solutions that allow our customers to harness the power of the information within their other systems to gain greater insights and to improve the overall security of their End Users and themselves. To date, a substantial majority of our revenues continue to result from sales of our digital banking platform to RCFIs.

Our digital banking platform provides our customers with the following benefits:

•single-login and multi-layered security across channels and devices;

•deep integration with numerous other internal and third-party systems;

•single interface to an FI's core transaction processing and other systems of record;

•unified End-User experience and consistent workflows, languages and data;

•rapid configurability, development and deployment of new features and functionality;

•comprehensive view of End-User activity across channels and devices;

•platform wide operational, administrative and customer experience/success reporting; and

•flexible, predictive branding and personalization.

We provide the following digital banking platform solutions:

Digital Lending and Relationship Pricing Solutions

PrecisionLender Solutions

Our PrecisionLender platform is a cloud-based, data-driven sales enablement, relationship pricing and portfolio management solution that allows financial institutions globally to structure and negotiate commercial lending, deposits and fee-based business transactions more effectively. During the negotiation process, the PrecisionLender platform analyzes a financial institution's entire commercial portfolio, and individual relationships, in addition to other external market information, to assess the performance of the portfolio and relationships. Based on such analysis, PrecisionLender provides commercial bankers with actionable insights by highlighting potential concerns and identifying potential opportunities, ultimately allowing them to more efficiently and effectively price, negotiate and close commercial loans, secure deposits and process treasury services. The PrecisionLender platform user experience is enhanced by Andi®, a banking copilot powered by AI and machine learning and one of the industry's largest commercial banking data sets. The PrecisionLender platform includes the following distinct solutions:

Cloud Lending Solutions

Our Q2 CL digital lending platform is a cloud-based, end-to-end lending solution that allows financial institutions, FinTechs and Alt-FIs to automate and digitize their lending activities, supporting digital lending applications, scoring, underwriting, servicing and collections for multiple assets classes. The CL digital lending platform allows financial institutions, FinTechs and Alt-FIs to originate and service a wide range of loan types including consumer, commercial, SMB and marketplace, or peer-to-peer. The CL digital lending platform utilizes the Force.com platform and includes the following distinct solutions, which financial institutions, FinTechs and Alt-FIs can use as a complete package or individually to supplement existing operations:

Q2 Innovation Studio

The Q2 Innovation Studio is a portfolio of technologies and solutions that financial institution customers, FinTechs and other digital solutions providers can leverage to design, develop, and distribute innovative products, services, features, and integrations through Q2's digital banking platform. Q2 Innovation Studio includes an API-based and SDK-based open technology platform that allows our financial institution customers, FinTechs and other digital solution providers to develop unique extensions of and integrations to our digital banking platform. Financial institution customers wishing to customize or supplement our digital banking platform solutions may subscribe to the Q2 Innovation Studio and deploy their own development resources, or utilize certified partners, to develop customized services or unique integrations, allowing them to innovate more quickly and to differentiate their digital brands leveraging our digital banking platform. Additionally, FinTechs and other digital solution providers can use the Q2 Innovation Studio to develop integrations of their financial services offerings to our digital banking platform, allowing our broad set of digital banking platform customers to select from a substantial and growing catalogue of pre-integrated technology partners to quickly and easily deploy the latest financial and other services solutions expected by End Users. Q2 Innovation Studio can significantly reduce the time and cost it takes to bring new offerings to market and create new opportunities for customer and End User engagement and retention. We believe Q2 Innovation Studio facilitates a mutually beneficial ecosystem of financial institutions, FinTechs and other digital solution providers, allowing them to partner, generate new revenue opportunities, and enhance End User engagement.

Helix

Helix allows FinTechs, Alt-FIs and financial institutions to incorporate unique banking services into their digital offerings, allowing them to easily and efficiently incorporate highly personalized financial experiences within their digital offerings and meet the stringent regulatory and technical requirements applicable to financial institutions and their banking services. Helix combines a cloud-native, real-time core processing platform with the services necessary to support it, including integrated issuer processing, identity verification technologies and the banking services of one of Q2's financial institution partners. These financial institution partners provide the highly-regulated banking services which FinTechs and Alt-FIs cannot offer on their own without a bank charter, including issuing accounts and cards, holding and insuring deposits and moving money on the FinTech's or Alt-FI's behalf.

Implementation Services, Professional Services and Customer Support

We seek to deepen and grow our customer relationships by providing consistent, high-quality implementation services, professional services, advisory services and customer support, which we believe drive higher customer retention and incremental sales opportunities within our existing customer base. We structure our implementation teams to effectively collaborate with the management and technology teams of our customers ensuring the rapid deployment and effective utilization of our solutions. We offer customized professional services to assist our customers with their efforts to extend our offerings and differentiate their digital brands. In certain cases, we engage with customers for more tailored, premium professional services, or Premier Services, with select established customers resulting in a deeper and ongoing level of engagement with them. Under certain circumstances for our CL digital lending solutions, we also partner with third-party professional system integrators to support our customers in the installation and configuration process. These implementation teams develop and execute a coordinated implementation plan for our customers centered around five standard phases of IT transformation projects: initiation, configuration, application testing, limited production and production.

Our customer support personnel serve the comprehensive support-related needs of our customers. Due to the highly-regulated and complex nature of the financial services industry, our implementation and customer support teams, including any third-party professional system integrators with which we partner, must be knowledgeable about our solutions and the regulatory environment in which our customers are required to operate.

Partner Offerings

In addition to our Q2 Innovation Studio offerings, our customers are reliant on an ever-growing ecosystem of third-party digital solutions to complement their financial services offerings, and we provide a broad range of tools to help our customers efficiently bring them to market. The flexible nature of our solutions, along with our proprietary, highly flexible set of integration tools, allows us to build rapid integrations with our customers' internal and third-party systems to support End-User activities and customer processes. These integration tools connect with a wide variety of third-party applications, allowing us to seamlessly integrate with our customers' internal and third-party systems such as account services, payments and imaging. Our ability to integrate with these systems enables our customers to offer a comprehensive set of consumer and commercial functionality to their End Users.

Our sales and marketing organization is responsible for growing our customer base and maintaining and expanding relationships with our existing customers. We sell our solutions primarily through our direct sales organization but also through partnerships for select solutions and global regions. Our direct sales organization consists of experienced sales professionals who are organized by geography, account size, type of market and whether a prospect is a new or existing customer. Customers are assigned a dedicated representative to provide ongoing assistance in the execution of the customer's digital strategy to meet the needs of its End Users. Our sales representatives are supported by our solutions consulting and sales operations teams.

Our marketing team complements our sales organization through integrated programs for demand creation, pipeline acceleration, customer expansion and brand advocacy. While the financial institution market is well-defined due to the regulatory classification of financial institutions, the markets for FinTechs and other financial services providers are broader and more difficult to define due to the changing number of providers in each market. We focus our marketing efforts on sponsorships, highly-targeted tradeshows, publications, digital newsletters, digital advertising, account-based marketing, as well as referral agreements with strategic industry partners. Our marketing team also conducts primary research to support our industry thought leadership and to identify emerging trends in End-User behavior and digital activities. Our marketing programs primarily target digital transformation, technology, finance, operations and marketing executives as well as senior business leaders.

Our focus on innovation has fueled our growth and enables us to provide our customers cloud-based digital solutions that transform the ways in which financial institutions, FinTechs and other financial service providers engage with End Users. We allocate significant resources to developing and improving our solutions to meet our customers' evolving needs. We monitor and test our solutions regularly, and we maintain a disciplined release process to enhance our existing solutions and introduce new capabilities without interrupting service delivery. We follow state-of-the-art practices in software development and design, including using modern programming languages, data storage systems and other tools. Our multi-tiered architecture enables us to scale, add and modify features quickly in response to changing market dynamics, customer needs and regulatory requirements. Our platform approach supports rapid development and deployment of new features to address evolving market needs. We also enable customers to address their market-specific needs via our extension and integration frameworks, which is a key aspect of our technology strategy.

Technology and Operations

Due to the highly regulated nature of the financial services industry, our digital banking platform combines both multi-tenant and single instance aspects. This structure is designed to meet data security needs, minimize compliance cost and reduce residual risks. Our solutions utilize a multi-tiered architecture that allows for scalability, operational simplicity, security and disaster recovery. We have also developed an internal operations and analytics platform that aggregates and leverages customer instance and End-User experience captured within our solutions to drive future innovation and scale.

We serve our digital banking platform customers from a distributed cloud which combines multiple public cloud vendors and a private cloud consisting of active-active globally-adopted ANSI/TIA-942 Telecommunications Infrastructure Standard data centers managed by a co-location partner. Our digital lending and relationship pricing, Helix and some of our digital banking platform solutions are hosted by cloud-based hosting services. All of our hosting environments are under our security posture and compliance stance. We integrate various solutions together so that it is a seamless experience to our End-Users, minimizing the impact and relevance of any one component on our combined distributed cloud hosting environment. This configuration provides us with a flexible foundation to support our innovation, allowing us to position services on a piecemeal basis to optimize their performance, scale, cost, resiliency and security.

We utilize prevailing industry configurations to minimize service interruptions, and regularly consider and implement improvements to enhance the resiliency of our services, including our improvements to actively distribute services across both data centers. As a result of these improvements, our network infrastructure is fully redundant within each of our data centers, including network teaming to provide network redundancy that includes multiple upstream Internet connections. We have also purchased a private block of IP address space to simplify and expedite our disaster recovery management operations for our digital banking platform customers.

Our digital banking platform has had average uptime in excess of 99.9% since January 2013. We actively monitor our infrastructure 24x7 for any sign of vulnerability, and we seek to take preemptive action to minimize and prevent downtime. Our hosting environments employ advanced measures to enhance integrity and security, from layers of zero-trust network access, design-to-fail architecture, anomaly behavior detection of technical assets, to privileged credential access control. We also use strong endpoint hardening and monitoring to mitigate risk posed by the devices used by our globally distributed workforce.

Our solutions are designed to enforce that End Users are authenticated, authorized and validated before they are granted access, requiring at a minimum, a valid user ID and associated password. Many of our customers also employ other authentication methods such as out-of-band, one-time password delivery to log on to our solutions and hardware cryptographic tokens to authorize transactions. Our layered security model is designed to allow different groups of End Users to have different levels of access to our solutions. Our software development practices require code to be peer-reviewed multiple times before being deployed into production and that our solutions' vulnerability is tested using internal tools prior to release. A Q2 penetration testing team, supported by an independent third party, performs penetration and vulnerability tests on our solutions periodically.

Intellectual Property

We rely on a combination of patent, trademark, trade secrets and copyright laws, as well as confidentiality procedures and contractual restrictions, to establish, maintain and protect our proprietary rights. As of December 31, 2023, we had seven patent applications pending and 13 patents issued in the U.S. and other countries, with expiration dates ranging from October 2027 to October 2040. Despite substantial investment in research and development activities, we have not focused on patents and patent applications historically. We license third-party technologies, such as bill pay technologies, that are incorporated into some of our solutions.

Our Competition

The market for digital solutions for financial services providers is highly competitive. We believe that the breadth of the comprehensive integrations among our solution offerings and our customers' internal and third-party systems, combined with our deep industry expertise, reputation for consistent, high-quality customer support, pace at which we bring innovation to market, and our unified cloud-based digital banking, digital lending and relationship pricing, Q2 Innovation Studio and Helix solutions distinguish us from the competition.

We currently compete with providers of technology and services in the financial services industry, including point system vendors, core processing vendors and systems internally developed by financial services providers. With respect to our digital banking platform, we have several point solution competitors, including NCR Voyix Corporation, or NCR Voyix, Alkami Technology, Inc. and Apiture in the online, consumer and SMB banking space and Finastra, ACI Worldwide, Inc. and Bottomline Technologies (de), Inc. in the commercial banking space. We also compete with core processing vendors that provide systems and services such as Fiserv, Inc., Jack Henry and Associates, Inc. and Fidelity National Information Services, Inc., or FIS. With respect to our digital lending and relationship pricing solutions, we compete against several point system competitors, including Abrigo, Baker Hill Solutions, LLC, nCino, Inc., Finastra, Brilliance Financial Technology, Temenos AG, and core processing vendors, including FIS and Fiserv. With respect to our Helix solution, we primarily compete with Galileo Financial Technologies, LLC, Marqeta, Inc. and Green Dot Corporation in the BaaS and embedded finance markets, and we compete with Finxact, a Fiserv company, Nymbus, Inc. and Thought Machine Group Limited in the cloud-core markets. Some of our competitors have significantly more financial, technical, marketing and other resources than we have, may devote greater resources to the promotion, sale and support of their systems than we can, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we have. In addition, some of our competitors spend more funds on research and development in terms of absolute dollars.

Although we compete with point system vendors and core processing vendors, we also partner with some of these vendors for certain data and services utilized in our solutions and receive referrals from them. In addition, certain of our customers have or can obtain the ability to create their own in-house systems, and while many of these systems have difficulties scaling and providing an integrated platform, we still face challenges displacing in-house systems and retaining customers that choose to develop an in-house system.

We believe the principal competitive factors for why customers choose our solutions in the financial services markets we serve include the following:

•alignment with the missions of our customers;

•ability to provide a single platform for consumer, SMB and commercial End Users;

•ability to provide a comprehensive portfolio of products of integrated end-to-end solutions for both account holders and borrowers;

•breadth and depth of product portfolio addressing numerous mission critical applications for our customers;

•full-feature functionality across digital channels;

•ability to integrate targeted offers for End Users across digital channels;

•ability to support financial institutions in acquiring deposits with open API technologies;

•SaaS delivery and pricing model;

•ability to support both internal and external developers to quickly integrate with third-party applications and systems utilizing an SDK;

•design of the End-User experience, including modern, intuitive and touch-centric features;

•configurability and branding capabilities for customers;

•familiarity of workflows and terminology and feature-on-demand functionality;

•integrated multi-layered security and compliance of solutions with regulatory requirements;

•quality of implementation, integration and support services;

•domain expertise and innovation in financial services technology;

•ability to innovate and respond to customer needs rapidly;

•breadth of integrations to third-party financial services;

•rate of development, deployment and enhancement of solutions; and

•ability to collect and utilize data generated by our solutions to deliver insights to our customers.

We believe that we compete favorably with respect to these factors within the financial institution and other financial services providers markets we serve, but we expect competition to continue and increase as existing competitors continue to evolve their offerings and as new companies enter our market. To remain competitive, we believe we must continue to invest in research and development, sales and marketing, customer support and our business operations generally.

People

As of December 31, 2023, we had 2,315 employees, of which 2,312 were full time employees, 1,703 of which were employed in the United States, and 609 were employed outside of the United States. We consider our current relationship with our employees to be good. None of our employees are represented by a labor union nor are a party to a collective bargaining agreement.

At Q2, we are as passionate about our people as we are about our mission. For more than 19 years, Q2 has been recognized and defined by our mission-driven culture. Our mission is to build stronger and more diverse communities by strengthening their financial institutions. Our people are paramount to our success, and we have always operated with a set of principles to help guide us in how we treat one another, run our business and serve our customers, partners and communities. To ensure our continued success, we endeavor to nurture our mission-driven culture by how we grow our teams, define our goals and reward our employees. Our current programs focus on the following key human capital measures and objectives:

Employee Engagement and Culture

Since our founding, our culture has been rooted in our mission. We believe our passion, dedication and commitment towards this mission is a significant differentiator for our customers and employees. At Q2, employees experience a culture that is collaborative, inclusive, kind and fun, and which is firmly grounded in our guiding principles. We weave Belonging and Inclusion into our business functions, strategy and engagement efforts.

Our culture is demonstrated and shared through our employee traditions and customs and daily engagements among our employees and with our customers. We continue to refine our employee engagement programs to meet the continued and changing needs of our Q2 team members, including to accommodate numerous remote and hybrid employees and hybrid working styles. We offer a range of learning and social opportunities, both virtually and remote, with more of our employee engagements returning to Q2 campuses. The role of the campus has evolved to emphasize interaction, which can include formal meetings, informal conversations, brainstorms, social events and other activities that make the most of being together face-to-face.

We fulfill our mission of building stronger and more diverse communities through volunteerism and financial support. We partner with local non-profits that align with our employees' passions. Through hands-on and virtual volunteering, Q2 team members provide care and impact in communities across the globe. Additionally, we use technology and online tools to help promote volunteer opportunities for individual employees and teams. We reward our employees for their community service with donation dollars to share with non-profits of their choice. Through the Q2 Philanthropy Fund, in 2023, we granted $120,000 to nonprofit organizations to help serve their mission in Texas, Nebraska, North Carolina and India. In 2023, our team members reported more than 10,000 hours of community service to approximately 220 different organizations, and our team members and Q2 combined efforts to donate more than $1.3 million to a variety of non-profit organizations across the globe.

We are also focusing our charitable efforts on new causes with Belonging and Inclusion-focused philanthropies, providing opportunities for our team members to learn as well as give back. During 2023, we were fortunate to bring awareness to a variety of important community programs supporting a range of needs, including The Trevor Project which operates the world's largest suicide prevention and crisis intervention organization for LGBTQIA+ youth, and Homes for our Troops, which builds homes for U.S. veterans in need. Our charitable efforts also focus on causes outside of the U.S., including India-based Akshaya Patra Foundation, which strives to address childhood hunger and promote education.

Employee engagement continues to be centered around our mission and supporting our communities. We celebrated Q2's anniversary with a volunteer and giving campaign, and over 1,900 team members joined the initiative by volunteering or donating to support charities addressing food insecurity in communities around the world. We closed out 2023 with a "Spark One Good Thing" initiative, which inspired employees to support charities and causes they are passionate about.

We are committed to our annual company-wide engagement surveys and thoroughly analyze their results, including through the use of third-party analytics, to ensure we hear our employees and understand their input and feedback. Additionally, we conduct pulse surveys throughout the year to supplement our annual engagement surveys, which helps us more promptly enhance employee programs and benefits. In 2023, we launched employee focus groups to collect qualitative feedback from employees. Our leadership team routinely considers the feedback from our employee engagement surveys, both positive and constructive, and focuses on implementing employee-suggested changes to become an even better place to work.

Q2 has been recognized by the Austin American-Statesman as a Greater Austin Top Workplace for 13 consecutive years and in 2023, Q2 was also recognized as a Top Workplace USA based on survey responses from employees across the country.

Our culture and commitment to inclusion is visible across our organization and highlighted through a host of initiatives, programs and groups including the following:

•our portfolio of company-wide events and forums that foster connections to the organization and one another;

•our employee volunteer groups focused on culture, wellness, and charitable causes that help create opportunities for employees to support causes to make a difference in the workplace and local communities;

•partnerships with industry leaders to bring networking and learning opportunities for our Q2 team members;

•adding new Q2 employee resource groups, or ERGs;

•promoting a work environment that encourages employees to express their ideas and perspectives, and one which gives employees easy access to leaders, including executives;

•supporting external community-based Belonging and Inclusion-focused causes and organizations;

•our workspaces and virtual workspace resources that reinforce our mission and guiding principles and promote a collaborative, high-energy work environment that helps facilitate team-based problem solving and cross-departmental learning; and

•our evolving new-hire employee orientations that help new employees learn about our business, culture, mission and values and be positioned for successful performance in their new roles.

To create a culture of teamwork and rewards, we support a range of recognition programs. One of our most utilized programs is a points-based rewards system that allows our employees to highlight successes and give thanks to individuals and teams across the organization. We encourage the engagement of peer-to-peer recognition and showcase our wins, while we utilize Q2's guiding principles as a framework to recognize the behaviors we expect our employees to model. We provide other meaningful opportunities for recognition that emphasize our commitments to each other and our customers, including our Circle of Awesomeness recognition program which recognizes outstanding team members across our organization, including both sales and non-sales team members. Employees are selected based on peer and customer nominations and are awarded with gifts to celebrate their accomplishments, including trips, personalized shopping experiences and professional development opportunities.

Through our sponsorship of Q2 Stadium and our partnership with Austin FC, Austin's major league soccer team, we are able to extend Q2's philanthropic footprint through volunteering and fundraising events, and offer meaningful team-building experiences, including:

•support of three central Texas nonprofits dedicated to underserved communities, totaling $150,000 in grants;

•$100,000 in an annual entrepreneurial sponsorship, providing funding to a minority-owned startup;

•our 2023 Dodgeball tournament for the Juvenile Diabetes Research Foundation, held at Q2 Stadium, that raised more than $125,000;

•volunteering over 800 employee hours through Q2 Stadium volunteer opportunities, benefiting regional nonprofits; and

•providing more than 1,000 Austin FC game-day experiences for our employees and a variety of customers and non-profit partners.

We embrace the diversity of our employees, partners, customers, other stakeholders and the communities we collectively serve. We believe that consideration of differing points of view, including unique backgrounds, experiences and talents, is critical to our success. We have a history of growing talent internally and providing opportunity for growth to a diverse group of employees. We continue to evolve our practices and operating procedures, looking for new ways to identify and mitigate bias within our organization. In addition to our first three ERGs, Q2 Women, Black Q2 and Q2 Pride, in 2023, we launched Gente de Q2, focusing new community support for Latino team members. Most recently, we announced the Q2 Veterans and Allies ERG. Each ERG has executive leadership support, a mission statement and volunteer leadership roster. All employees are invited to participate and volunteer in any of our ERGs and their events.

The following tables represent the diversity statistics of our workforce. Gender numbers reflect Q2's global workforce, and race and ethnicity data is for U.S. only. Gender and ethnicity are self-identified. Based on information provided by our employees who opted to self-identify, representing the vast majority of our employees, our employee population as of December 31, 2023 reflected the following:

Learning and Development

We recognize the importance of employees developing and progressing in their careers, starting on their first day with our robust new-hire employee orientation and thoughtful onboarding plans, which are designed to give employees a successful beginning of their Q2 career and to accelerate their time to productivity, including deep dives into our culture, products, markets as well as our Code of Business Conduct and Ethics, our values and our 10 Guiding Principles. Once employees are onboarded, we focus on ways to further develop their skills and careers at Q2. We provide a variety of resources to help our employees grow in their current roles and build new skills, including a wide variety of development resources and courses, offered on-demand and in facilitated live learning opportunities. We emphasize individual and team development planning as part of our annual goal-setting process. In 2023, our team members completed over 110,000 hours of training. We believe leading our employees is one of the greatest acts of trust we can show to our managers, and accordingly all managers go through training to enable them to effectively perform as leaders. We offer leadership development resources and programs for all leaders at all experience levels, have created leadership competencies based on our guiding principles to help frame our leadership development programs and continue to build tools to continually advance leaders' capabilities to develop and scale their teams. Globally, we are invested in higher education through internship programs that target colleges and universities. Our U.S. college intern program hosts students working across nearly all functions at Q2. Working primarily on Q2 campuses, interns benefit from a 10-week summer program that includes on-the-job learning, a targeted curriculum and community service opportunities.

We offer development experiences in a variety of formats, facilitated in both classroom style and asynchronous on-demand opportunities available to all Q2 team members. We offer role-specific training, ongoing professional skills development, inclusion skills, and we collaborate with other learning partners to create a wide portfolio of learning resources. We also have launched new online learning experiences to better target digital training resources for employees at any point in their Q2 career journey, from new hire through career development. In 2023, our most senior leaders participated in a development program to continue to develop our strong leadership bench and ensure cross-functional collaboration on strategic business opportunities.

Talent Acquisition

We work diligently to attract great talent from a diverse range of sources to meet the current and future demands of our business. We have established relationships with world-class universities, professional associations and industry groups to proactively attract talent. To attract talent, we have a strong employee value proposition that leverages our mission-driven culture, collaborative working environment, competitive pay structures and growth opportunities. We are proud that for fiscal year 2023, over 20% of our requisitions were filled internally, utilizing our strong internal talent pipeline, in addition to building the external talent relationships needed to support our company strategy. We continually strive to develop and maintain a broad-based recruiting pipeline representing a diversity of perspectives and experience, with an emphasis on using objective measurements in our hiring process.

Compensation and Benefits

Our compensation programs are designed to provide a compensation package that will attract, retain, motivate and reward talented mission-aligned employees who must operate in a fast paced, highly-competitive, and technologically-challenging environment, commensurate with their roles and contributions. For our director-level and above employees, as well as all of our sales personnel, we seek to do this by linking annual changes in compensation to overall company performance, and where applicable, each individual's contribution to the results achieved. The emphasis on overall company performance is intended to align such employees' financial interests with the interests of our stockholders, particularly as it relates to our long-term incentive plans. We are committed to providing comprehensive benefit options, and it is our intention to offer benefits that will allow our employees and their families to live healthier and more secure lives. Some examples of our wide-ranging benefits offered are: defined contribution retirement plans, including employer contributions; employee stock purchase plan; medical insurance, prescription drug benefits, dental insurance, vision insurance, accident insurance, critical illness insurance, life insurance, disability insurance, health savings accounts with employer contributions, flexible spending accounts, legal insurance and pet insurance.

Employee Well-Being

We are committed to the health, safety and well-being of our employees. In addition to traditional employee benefits, we offer a number of innovative benefits to support the physical, mental and financial health of our employees. These include, among many other things: virtual wellness clinics and classes; global fertility benefits; our Q2 Compassion Fund, which is designed to help team members facing financial hardship immediately after natural disasters or unforeseen personal hardships; online tools that assist employees with their physical and mental health; and special events with outside vendors and participants focusing on employee well-being. We also provide global access to an Employee Assistance Program (EAP) connecting our employees and anyone living in their household with access to a variety of resources, including mental health and counseling, work life balance and online legal resources.

Government Regulation

As a technology service provider to financial institutions, FinTechs and Alt-FIs in the United States, we are not required to be chartered by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration or other federal or state agencies that regulate or supervise our customers and other providers of financial services in the United States.

Our customers and prospects are subject to extensive and complex regulations and oversight by regulatory authorities. These laws and regulations are constantly evolving and affect the conduct of our customers' operations and, as a result, our business. Our solutions must enable our customers to comply with applicable requirements such as the following:

•the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act;

•the Electronic Funds Transfer Act;

•Mobile Banking Guidance;

•the Electronic Signatures in Global and National Commerce Act;

•federal, state and other usury laws;

•the Gramm-Leach-Bliley Act, or GLBA;

•the Fair Credit Reporting Act;

•the Americans with Disabilities Act, or ADA;

•the EU General Data Protection Regulation, or GDPR;

•laws against unfair, deceptive, or abusive acts or practices;

•the Privacy of Consumer Financial Information regulations;

•the Bank Secrecy Act and the USA PATRIOT Act of 2001;

•the Guidance on Supervision of Technology Services Providers promulgated by the Federal Financial Institutions Examination Council, or FFIEC;

•third-party risk management regulations;

•the NCUA's Guidelines for Safekeeping of Member Information;

•the Guidance on Outsourcing Technology Services promulgated by the FFIEC; and

•other federal, state and international laws and regulations.

We are subject to periodic examination by regulators under the authority of the FFIEC under its Guidance on the Supervision of Technology Services Providers and the Gramm-Leach-Bliley Act of 1999, and federal, state and other laws that apply to technology service providers as a result of the services we provide to the institutions and entities they regulate. As a technology service provider, we are examined by federal financial regulators on a rotating basis. These examinations are based on guidance from the FFIEC, which is a formal interagency body empowered to prescribe uniform principles, standards and report forms for the examination of financial institutions and to make recommendations to promote uniformity in the supervision of financial institutions. The examinations cover a wide variety of subjects, including our management, acquisition and development activities, support and delivery, information technology audits, cybersecurity, as well as our disaster preparedness and business recovery planning. The FFIEC has broad supervisory authority to remedy any shortcomings identified in an examination. Following an examination, our financial institutions customers may request the open section of the report of examination through their lead examination agency.

The Dodd-Frank Act granted the Consumer Financial Protection Bureau, or CFPB, authority to promulgate rules and interpret certain federal consumer financial protection laws, some of which apply to the solutions we offer. In certain circumstances, the CFPB also has examination and supervision powers with respect to service providers who provide a material service to a financial institution offering consumer financial products and services.

The compliance of our solutions with these requirements depends on a variety of factors, including the functionality and design of our solutions, the classification of our customers, and the way our customers and their End Users utilize our solutions. To comply with our obligations under these laws, we are required to implement operating policies, programs and procedures to protect the privacy and security of our customers' and their End Users' information and to undergo periodic audits and examinations.

Privacy and Information Safeguard Laws

In the ordinary course of our business, we and our customers using our solutions access and transmit certain types of data, which subjects us and our customers to certain privacy and information security laws in the United States and internationally, including, for example, GLBA, CCPA, CPRA and GDPR, and other federal, state, and other international data privacy, security, and protection laws and regulations designed to regulate consumer information and mitigate identity theft. We are also subject to privacy laws of various states. These laws impose obligations with respect to the collection, processing, storage, disposal, use and disclosure of personal information, and require that financial services providers have in place policies regarding information privacy and security. In addition, under certain of these laws, we must provide notice to consumers of our policies and practices for sharing nonpublic information with third parties, provide advance notice of any changes to our policies and, with limited exceptions, give consumers the right to prevent use of their nonpublic personal information and disclosure of it to unaffiliated third parties. Certain of these laws may, in some circumstances, require us to notify affected clients of security and privacy breaches of computer databases that contain their End-Users' personal information. These laws may also require us to notify relevant law enforcement, regulators or consumer reporting agencies in the event of a data breach, as well as businesses and governmental agencies that own data. In order to comply with the privacy and information safeguard laws, we have confidentiality and information security standards and procedures in place for our business activities and our third-party vendors and service providers. Privacy and information security laws and regulations evolve regularly, requiring us to adjust our compliance program on an ongoing basis.

Available Information

Our website address is https://q2.com. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of our Internet website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to the SEC. Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.