Q2 Holdings Inc

Previous wording

We have deep domain expertise in developing and delivering advanced digital banking and lending 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 domestic 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 domestically and outside of the U.S. In addition to our open platform solutions and BaaS offerings, we also 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. While we remain focused on our founding mission of building stronger and more diverse communities by strengthening their financial institutions, 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.

Current wording

We have deep domain expertise in developing and delivering advanced digital banking and lending solutions designed to help our customers and technology partners compete in the complex and heavily regulated financial services industry. Over 20 years ago, Q2 began by providing digital banking solutions to domestic 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 domestically and outside of the U.S. In addition to our open platform solutions and BaaS offerings, we also 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. While we remain focused on our founding mission of building stronger and more diverse communities by strengthening their financial institutions, 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.

Previous wording

There continues to be widespread geopolitical and macroeconomic uncertainties, some of which are impacting business and consumer behavior. We believe the combination of higher interest rates and persistent inflation, tight labor markets, wage inflation, geopolitical uncertainty, recession fears and other macroeconomic conditions continues to put pressure on some corporate growth initiatives. Persistent elevated interest rates or any further increase in interest rates may reduce account holder demand for loans and can reduce the creditworthiness of existing borrowers, resulting in operational challenges for financial institutions, including higher credit losses and difficulty in assessing risk in their existing loan portfolios and in making new lending decisions. A significant portion of our revenues is derived from sales of our digital banking platform to U.S. based RCFIs, which have and may continue to be impacted by challenges in the macroeconomic environment and financial services industry. However, we believe that higher interest rates also have increased the importance for financial institutions to attract and retain depository relationships, which we believe has increased demand for our digital banking solutions. In recent periods we have observed improved subscription bookings and associated revenue primarily from our digital banking solutions as a result of banking conditions placing an importance on attracting and retaining deposits.

Current wording

There continues to be widespread geopolitical and global economic uncertainties, some of which are impacting business and consumer behavior. We believe various factors including high and shifting interest rates, inflation rates, tight labor markets, wage inflation, geopolitical uncertainty, recession fears and other economic conditions continue to put pressure on some corporate IT expenditures. Persistent elevated interest rates or any future increase in interest rates may reduce account holder demand for loans and can reduce the creditworthiness of existing borrowers, resulting in operational challenges for financial institutions, including higher credit losses and difficulty in assessing risk in their existing loan portfolios and in making new lending decisions. A significant portion of our revenues is derived from sales of our digital banking platform to U.S. based RCFIs, which have and may continue to be impacted by challenges in the economic environment and financial services industry. However, we believe that higher interest rates also have increased the importance for financial institutions to attract and retain depository relationships, which we believe has increased demand for our digital banking solutions. In recent periods we have observed improved subscription bookings and associated revenue primarily from our digital banking solutions as a result of banking conditions placing an importance on attracting and retaining deposits.

Previous wording

Some financial institutions have in the past experienced significant pressure due to economic uncertainty, liquidity concerns and increased regulatory scrutiny. In recent years, many financial institutions have merged or been acquired, and periodically during downturns, a limited number of financial institutions have failed, creating market disruption and uncertainty for the financial services industry, in particular among RCFIs. The actions taken by such institutions to address potential liquidity concerns have resulted in certain institutions incurring substantial costs that have negatively impacted, and may continue to negatively impact, their profitability and could lead to further market instability or bank failures. Additionally, regulatory changes aimed at stabilizing the financial system could impose new burdens, further straining the profitability of these institutions and potentially leading to a contraction in economic activities. The current market conditions, including deteriorating performance of loan portfolios, capital constraints due to more stringent reserve requirements, and elevated levels of direct losses and charge-offs for some financial institutions, have also caused and may continue to cause financial institutions to reduce lending activity as they seek to increase their reserves to maintain better liquidity. Additionally, banking regulators, alongside increasingly cautious investors, have increased scrutiny of commercial real estate lending. This heightened attention may compel financial institutions with substantial commercial real estate loan portfolios to adopt more stringent underwriting standards, enhance internal controls, bolster risk management policies, conduct more rigorous portfolio stress testing, and maintain higher reserve levels. While the U.S. government has taken measures to strengthen public confidence in the banking system and protect depositors, such steps may be insufficient to resolve the volatility in the financial markets and reduce the risk of additional bank failures. The duration and severity of these general economic conditions and their long-term effects on us and our customers remain uncertain and difficult to predict. Refer to "Special Note Regarding Forward Looking Statements" above for further discussion of the impact and possible future impacts of general macroeconomic uncertainty and the current challenges facing the financial services industry on our business.

Current wording

Some financial institutions have in the past experienced significant pressure due to economic uncertainty, liquidity concerns and increased regulatory scrutiny. In recent years, many financial institutions have merged or been acquired, and periodically during downturns, a limited number of financial institutions have failed, creating market disruption and uncertainty for the financial services industry, in particular among RCFIs. The actions taken by such institutions to address potential liquidity concerns have resulted in certain institutions incurring substantial costs that have negatively impacted, and may continue to negatively impact, their profitability and could lead to further market instability or bank failures. Additionally, regulatory changes aimed at stabilizing the financial system could impose new burdens, further straining the profitability of these institutions and potentially leading to a contraction in economic activities. The current market conditions, including deteriorating performance of loan portfolios, capital constraints due to more stringent reserve requirements, and elevated levels of direct losses and charge-offs for some financial institutions, have also caused and may continue to cause financial institutions to reduce lending activity as they seek to increase their reserves to maintain better liquidity. Additionally, banking regulators, alongside increasingly cautious investors, have increased scrutiny of commercial real estate lending. This heightened attention may compel financial institutions with substantial commercial real estate loan portfolios to adopt more stringent underwriting standards, enhance internal controls, bolster risk management policies, conduct more rigorous portfolio stress testing, and maintain higher reserve levels. While the U.S. government has taken measures to strengthen public confidence in the banking system and protect depositors, such steps may be insufficient to resolve the volatility in the financial markets and reduce the risk of additional bank failures. The duration and severity of these general economic conditions and their long-term effects on us and our customers remain uncertain and difficult to predict. Refer to "Special Note Regarding Forward Looking Statements" above for further discussion of the impact and possible future impacts of general economic uncertainty and the current challenges facing the financial services industry on our business.

Previous wording

We define a Registered User as an individual related to an account holder of an Installed Customer on our consumer digital banking platform who has registered to use one or more of our digital banking solutions and has current access to use those solutions as of the last day of the reporting period presented. Our average number of Registered Users per Installed Customer grows as our existing digital banking platform customers add more Registered Users and as we add larger financial institutions to our Installed Customer base. We anticipate that the number of Registered Users will grow at a faster rate than our number of Installed Customers, however this will be partially offset as our commercial digital banking platform represents a greater proportion of our Installed Customers solutions without the associated Registered User impact. We add new Registered Users through both organic and inorganic growth from existing customers and from the addition of End Users from new Installed Customers. Our Installed Customers had approximately 22.0 million, 21.1 million and 19.2 million Registered Users as of December 31, 2023, 2022 and 2021, respectively. Registered Users as of June 30, 2024 were 23.6 million compared to 21.7 million as of June 30, 2023.

Current wording

We define a Registered User as an individual related to an account holder of an Installed Customer on our consumer digital banking platform who has registered to use one or more of our digital banking solutions and has current access to use those solutions as of the last day of the reporting period presented. Our average number of Registered Users per Installed Customer grows as our existing digital banking platform customers add more Registered Users and as we add larger financial institutions to our Installed Customer base. We anticipate that the number of Registered Users will grow at a faster rate than our number of Installed Customers, however this will be partially offset as our commercial digital banking platform represents a greater proportion of our Installed Customers solutions without the associated Registered User impact. We add new Registered Users through both organic and inorganic growth from existing customers and from the addition of End Users from new Installed Customers. Our Installed Customers had approximately 22.0 million, 21.1 million and 19.2 million Registered Users as of December 31, 2023, 2022 and 2021, respectively. Registered Users as of September 30, 2024 were 24.4 million compared to 22.0 million as of September 30, 2023.

Previous wording

We believe that our ability to retain our customers and expand their use of our products and services over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships. One of the ways we assess our performance in this area is by using a metric we refer to as our net revenue retention rate, which we previously referred to as our revenue retention rate. We calculate our net revenue retention rate as the total revenues in a calendar year, excluding any revenues from acquired customers during such year, from customers who were implemented on any of our solutions as of December 31 of the prior year, expressed as a percentage of the total revenues during the prior year from the same group of customers. Our net revenue retention rate provides insight into the impact on current year revenues of: the number of new customers implemented on any of our solutions during the prior year; the timing of our implementation of those new customers in the prior year; growth in the number of End Users on such solutions and changes in their usage of such solutions; and sales of new products and services to our existing customers during the current year, excluding any products or services resulting from businesses acquired during such year and customer attrition. The most significant drivers of changes in our net revenue retention rate each year have historically been the number of new customers in the prior year and the timing of our implementation of those new customers. The timing of our implementation of new customers in the prior year is significant because we do not start recognizing revenues from new customers until they are implemented. If implementations are weighted more heavily in the first or second half of the prior year, our net revenue retention rate will be lower or higher, respectively. In the first half of 2021, our implementations were weighted more heavily, and we experienced a lower net revenue retention rate in 2022 as a result. The continued strength observed in subscription revenue derived from our existing customers, offset by the expected decline in discretionary services revenue with some of our existing customers was reflected in the decline in net revenue retention rate in 2023. Our use of net revenue retention rate has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate net revenue retention rate differently, which reduces its usefulness as a comparative measure. Our net revenue retention rate was 108%, 110% and 119% for the years ended December 31, 2023, 2022 and 2021, respectively.

Current wording

We believe that our ability to retain our customers and expand their use of our products and services over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships. One of the ways we assess our performance in this area is through our net revenue retention rate. We calculate our net revenue retention rate as the total revenues in a calendar year, excluding any revenues from acquired customers during such year, from customers who were implemented on any of our solutions as of December 31 of the prior year, expressed as a percentage of the total revenues during the prior year from the same group of customers. Our net revenue retention rate provides insight into the impact on current year revenues of: the number of new customers implemented on any of our solutions during the prior year; the timing of our implementation of those new customers in the prior year; growth in the number of End Users on such solutions and changes in their usage of such solutions; and sales of new products and services to our existing customers during the current year, excluding any products or services resulting from businesses acquired during such year and customer attrition. The most significant drivers of changes in our net revenue retention rate each year have historically been the number of new customers in the prior year and the timing of our implementation of those new customers. The timing of our implementation of new customers in the prior year is significant because we do not start recognizing revenues from new customers until they are implemented. If implementations are weighted more heavily in the first or second half of the prior year, our net revenue retention rate will be lower or higher, respectively. For example, in the first half of 2021, our implementations were weighted more heavily, and we experienced a lower net revenue retention rate in 2022 as a result. The continued strength observed in subscription revenue derived from our existing customers, offset by the expected decline in discretionary services revenue with some of our existing customers was reflected in the decline in net revenue retention rate in 2023. Our use of net revenue retention rate has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate net revenue retention rate differently, which reduces its usefulness as a comparative measure. Our net revenue retention rate was 108%, 110% and 119% for the years ended December 31, 2023, 2022 and 2021, respectively.

Previous wording

Our Subscription ARR was $593.9 million, $500.9 million and $426.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Subscription ARR as of June 30, 2024 was $633.9 million compared to $533.2 million as of June 30, 2023. Our Total ARR was $734.8 million, $655.2 million and $574.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. Total ARR as of June 30, 2024 was $783.0 million compared to $681.2 million as of June 30, 2023.

Current wording

Our Subscription ARR was $593.9 million, $500.9 million and $426.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Subscription ARR as of September 30, 2024 was $654.6 million compared to $547.0 million as of September 30, 2023. Our Total ARR was $734.8 million, $655.2 million and $574.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. Total ARR as of September 30, 2024 was $796.4 million compared to $693.6 million as of September 30, 2023.

Previous wording

We define non-GAAP revenue as total revenue excluding the impact of purchase accounting. We monitor these measures to assess our performance because we believe our revenue growth rates would be understated without these adjustments. We believe presenting non-GAAP revenue aids in the comparability between periods and in assessing our overall operating performance. During the three and six months ended June 30, 2024, there was no impact of purchase accounting on revenue, and our non-GAAP total revenue is now equivalent to our GAAP total revenue.

Current wording

We define non-GAAP revenue as total revenue excluding the impact of purchase accounting. We monitor these measures to assess our performance because we believe our revenue growth rates would be understated without these adjustments. We believe presenting non-GAAP revenue aids in the comparability between periods and in assessing our overall operating performance. During the three and nine months ended September 30, 2024, there was no impact of purchase accounting on revenue, and our non-GAAP total revenue is now equivalent to our GAAP total revenue.

Previous wording

•Lease and other restructuring charges. We provide non-GAAP information that excludes restructuring charges related to the estimated costs of exiting and terminating facility lease commitments, partially offset by anticipated sublease income, any related impairments of the right of use assets as they relate to corporate restructuring and exit activities, as well as severance and other related compensation charges associated with eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value. These charges are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these charges for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.

Current wording

•Lease and other restructuring charges. We provide non-GAAP information that excludes restructuring charges related to the estimated costs of exiting and terminating facility lease commitments, partially offset by anticipated sublease income, and any related impairments of the right of use assets as they relate to corporate restructuring and exit activities. It also excludes severance cash payouts and other related compensation associated with restructuring, departure of executive officers or eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value. These charges are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these charges for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.

Previous wording

We define adjusted EBITDA as net loss before depreciation, amortization, stock-based compensation, transaction-related costs, provision for income taxes, interest and other (income) expense, net, deferred revenue reduction from purchase accounting, gain on extinguishment of debt, and lease and other restructuring charges. We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results for the following reasons:

Current wording

We define adjusted EBITDA as net loss before deferred revenue reduction from purchase accounting, stock-based compensation, transaction-related costs, depreciation, amortization, lease and other restructuring charges, provision for income taxes, gain on extinguishment of debt and interest and other (income) expense, net. We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results for the following reasons:

Previous wording

Subscription fees are based on the number of solutions purchased by our customers, the number of End Users using the solutions and other usage fees those users generate using our solutions in excess of the levels included in our standard subscription fee. Subscription fees are billed monthly, quarterly or annually and are recognized monthly over the term of our customer agreements. The initial term of our digital banking platform agreements averages over five years, although it varies by customer. 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 begin recognizing subscription fees when the control of the service transfers to the customer, generally when the solution is implemented and made available to the customer. We recognize revenue for debit card and bill-pay related transaction services when End-Users utilize debit card services integrated within our Helix and other payment-service solutions in the month incurred based on actual or estimated transactions. The timing of our implementations varies period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers and the readiness of our customers to implement our solutions. We typically recognize any related implementation services revenues ratably over the initial customer agreement term beginning on the date we commence recognizing subscription fees. Contract asset balances arise primarily when we provide services in advance of billing for those services. Amounts that have been invoiced are recorded in accounts receivable, and in revenues or deferred revenues, depending on when control of the service transfers to the customer.

Current wording

Subscription fees are based on the number of solutions purchased by our customers, the number of End Users using the solutions and other usage fees those users generate by using our solutions in excess of the levels included in our standard subscription fee. Subscription fees are billed monthly, quarterly or annually and are recognized monthly over the term of our customer agreements. The initial term of our digital banking platform agreements averages over five years, although it varies by customer. 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 begin recognizing subscription fees when the control of the service transfers to the customer, generally when the solution is implemented and made available to the customer. We recognize revenue for debit card and bill-pay related transaction services when End Users utilize debit card services integrated within our Helix and other payment-service solutions in the month incurred based on actual or estimated transactions. The timing of our implementations varies period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers and the readiness of our customers to implement our solutions. We typically recognize any related implementation services revenues ratably over the initial customer agreement term beginning on the date we commence recognizing subscription fees. Contract asset balances arise primarily when we provide services in advance of billing for those services. Amounts that have been invoiced are recorded in accounts receivable, and in revenues or deferred revenues, depending on when control of the service transfers to the customer.

Previous wording

In recent periods we have observed improved subscription bookings and associated revenue primarily from our digital banking solutions as a result of banking conditions placing an importance on attracting and retaining deposits. During the three and six months ended June 30, 2024, our subscription revenue growth was 17% and 15%, respectively, as compared to the prior year period, and we expect subscription revenue will continue to increase as a percentage of total revenue. We have observed a general decline in transactional and other revenue from our Helix and payment solutions, resulting from decreased usage. In recent periods, we have also observed a general decline in customer demand for certain discretionary aspects of our solutions, namely professional serv ices, which we believe may be related to challenging macroeconomic conditions and the associated pressure on costs until the economic climate stabilizes and their respective financial outlooks improve.

Current wording

In recent periods we have observed improved subscription bookings and associated revenue primarily from our digital banking solutions as a result of banking conditions placing an importance on attracting and retaining deposits. During the three and nine months ended September 30, 2024, our subscription revenue growth was 18% and 16%, respectively, as compared to the prior year period, and we expect subscription revenue will continue to increase as a percentage of total revenue. We have observed a general decline in transactional and other revenue from our Helix and payment solutions, resulting from decreased usage. In recent periods, we have also observed a general decline in customer demand for certain discretionary aspects of our solutions, namely professional serv ices, which we believe may be related to challenging economic conditions and the associated pressure on costs until the economic climate stabilizes and their respective financial outlooks improve.

Previous wording

General and administrative expenses consist primarily of salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, of our administrative, finance and accounting, information systems, legal, human resources employees and certain members of our executive team. General and administrative expenses also include consulting and professional fees, insurance, travel and other corporate expenses. We expect to continue to incur incremental expenses associated with the growth of our business and to meet increased compliance requirements associated with operating as a regulated, public company. These expenses include costs to comply with Section 404 of the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of directors' and officers' liability insurance and investor relations activities.

Current wording

General and administrative expenses consist primarily of salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, of our administrative, finance and accounting, information systems, compliance and security, legal, human resources employees and certain members of our executive team. General and administrative expenses also include consulting and professional fees, insurance, travel and other corporate expenses. We expect to continue to incur incremental expenses associated with the growth of our business and to meet increased compliance requirements associated with operating as a regulated, public company. These expenses include costs to comply with Section 404 of the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of directors' and officers' liability insurance and investor relations activities.

Previous wording

Lease and other restructuring charges include costs related to the early vacating of certain facilities, any related impairment of the right of use assets and ongoing expenses of other vacated facilities, partially offset by anticipated sublease income from the associated facilities, as well as severance and other related compensation charges associated with eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value.

Current wording

Lease and other restructuring charges include costs related to the early vacating of certain facilities, any related impairment of the right of use assets and ongoing expenses of other vacated facilities, partially offset by anticipated sublease income from the associated facilities. It also includes severance cash payouts and other related compensation associated with restructuring, departure of executive officers or eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value.

Previous wording

Total other income (expense), net, consists primarily of interest income and expense, other non-operating income and expense, loss on disposal of long-lived assets, foreign currency translation adjustment and gain on extinguishment of debt. We earn interest income on our cash, cash equivalents and investments. Interest expense consists primarily of the interest from the amortization of debt issuance costs and coupon interest attributable to our convertible notes, as well as fees and interest associated with the letter of credit issued to our landlord for the security deposit for our corporate headquarters.

Current wording

Total other income, net, consists primarily of interest income and expense, other non-operating income and expense, loss on disposal of long-lived assets, foreign currency translation adjustment and gain on extinguishment of debt. We earn interest income on our cash, cash equivalents and investments. Interest expense consists primarily of the interest from the amortization of debt issuance costs, coupon interest attributable to our convertible notes, commitment fees associated with our Revolving Credit Agreement, as well as fees and interest associated with the letter of credit issued to our landlord for the security deposit for our corporate headquarters.

Previous wording

(1)Includes deferred revenue reduction from purchase accounting of zero and $0.1 million for the three months ended June 30, 2024 and 2023, respectively, and zero and $0.2 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(1)Includes deferred revenue reduction from purchase accounting of zero and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, and zero and $0.3 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

(2)Includes amortization of acquired technology of $5.5 million and $5.9 million for the three months ended June 30, 2024 and 2023, respectively, and $11.0 million and $11.8 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(2)Includes amortization of acquired technology of $5.5 million and $5.9 million for the three months ended September 30, 2024 and 2023, respectively, and $16.5 million and $17.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

(3)Includes a gain of $19.9 million related to the early extinguishment of a portion of our 2026 Notes and 2025 Notes for the six months ended June 30, 2023.

Current wording

(3)Includes a gain of $19.9 million related to the early extinguishment of a portion of our 2026 Notes and 2025 Notes for the nine months ended September 30, 2023.

Previous wording

(1) Includes deferred revenue reduction from purchase accounting of 0.0% and 0.1% for the three months ended June 30, 2024 and 2023, respectively, and 0.0% and 0.1% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(1) Includes deferred revenue reduction from purchase accounting of 0.0% for both the three months ended September 30, 2024 and 2023, and 0.0% and 0.1% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

(2)Includes amortization of acquired technology of 3.2% and 3.8% for the three months ended June 30, 2024 and 2023, respectively, and 3.3% and 3.8% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(2)Includes amortization of acquired technology of 3.1% and 3.8% for the three months ended September 30, 2024 and 2023, respectively, and 3.2% and 3.8% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

(3)Includes an increase of 6.5% related to a gain from the early extinguishment of a portion of our 2026 Notes and 2025 Notes for the six months ended June 30, 2023.

Current wording

(3)Includes an increase of 4.3% related to a gain from the early extinguishment of a portion of our 2026 Notes and 2025 Notes for the nine months ended September 30, 2023.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023. Revenues increased by $30.9 million, or 10.0%, from $307.5 million for the six months ended June 30, 2023 to $338.4 million for the six months ended June 30, 2024. This increase in revenue was primarily attributable to a $35.2 million increase in subscription revenue from the sale of additional solutions to new and existing customers and growth in usage from new and existing customers and a $0.8 million increase in transactional revenue from usage of our solutions, partially offset by decreases of $5.2 million in services and other revenue from declines in professional and discretionary services and Helix related pass-through revenue.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Revenues increased by $20.1 million, or 12.9%, from $155.0 million for the three months ended September 30, 2023 to $175.0 million for the three months ended September 30, 2024. This increase in revenue was primarily attributable to a $21.8 million increase in subscription revenue from the sale of additional solutions to new and existing customers and growth in usage from new and existing customers and a $0.6 million increase in transactional revenue from usage of our solutions, partially offset by a decrease of $2.3 million in services and other revenue from declines in professional and discretionary services and Helix related pass-through revenue.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. Revenues increased by $18.4 million, or 11.9%, from $154.5 million for the three months ended June 30, 2023 to $172.9 million for the three months ended June 30, 2024. This increase in revenue was primarily attributable to a $20.1 million increase in subscription revenue from the sale of additional solutions to new and existing customers and growth in usage from new and existing customers, partially offset by a $1.7 million decrease in services and other revenue from declines in professional and discretionary services and Helix related pass-through revenue.

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Revenues increased by $50.9 million, or 11.0%, from $462.5 million for the nine months ended September 30, 2023 to $513.4 million for the nine months ended September 30, 2024. This increase in revenue was primarily attributable to a $57.0 million increase in subscription revenue from the sale of additional solutions to new and existing customers and growth in usage from new and existing customers and a $1.4 million increase in transactional revenue from usage of our solutions, partially offset by a decrease of $7.5 million in services and other revenue from declines in professional and discretionary services and Helix related pass-through revenue.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. Cost of revenues increased by $5.4 million, or 6.6%, from $80.7 million for the three months ended June 30, 2023 to $86.1 million for the three months ended June 30, 2024. This increase was primarily attributable to a $2.7 million net increase in co-location facility, hardware and software costs, and depreciation of our data center assets resulting from the increased infrastructure necessary to support our growing customer activity, a $1.9 million increase in personnel costs, including an increase in the number of personnel who provide implementation and customer support services and maintain our data centers and other technical infrastructure, a $1.5 million increase from the amortization of capitalized software development and capitalized implementation services, a $0.9 million increase in third-party costs related to intellectual property included in our solutions and transaction processing costs and a $0.4 million increase in overhead costs and other discretionary expenses, partially offset by a $1.1 million decrease in pass-through fees, a $0.6 million decrease as a result of higher capitalized implementation costs and a $0.4 million decrease in amortization of acquired customer technology resulting from assets that became fully amortized.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Cost of revenues increased by $5.1 million, or 6.3%, from $80.8 million for the three months ended September 30, 2023 to $86.0 million for the three months ended September 30, 2024. This increase was primarily attributable to a $3.2 million increase in personnel costs, including an increase in the number of personnel who provide implementation and customer support services and maintain our data centers and other technical infrastructure, a $2.2 million net increase in co-location facility, hardware and software costs, cloud-based hosting costs and depreciation of our data center assets resulting from the increased infrastructure necessary to support our growing customer activity, a $1.1 million increase from the amortization of capitalized software development and capitalized implementation services, a $0.5 million increase in third-party costs related to intellectual property included in our solutions and transaction processing costs and a $0.4 million increase in overhead costs and other discretionary expenses, partially offset by a $1.4 million decrease as a result of higher capitalized implementation costs, a $0.6 million decrease in services, primarily in pass-through fees and a $0.4 million decrease in amortization of acquired customer technology resulting from assets that became fully amortized.

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023. Cost of revenues increased by $8.9 million, or 5.6%, from $160.4 million for the six months ended June 30, 2023 to $169.3 million for the six months ended June 30, 2024. This increase was primarily attributable to a $4.7 million net increase in co-location facility, hardware and software costs, and depreciation of our data center assets resulting from the increased infrastructure necessary to support our growing customer activity, a $3.4 million increase from the amortization of capitalized software development and capitalized implementation services, a $2.7 million increase in personnel costs, including an increase in the number of personnel who provide implementation and customer support services and maintain our data centers and other technical infrastructure, a $1.6 million increase in third-party costs related to intellectual property included in our solutions and transaction processing costs and a $0.8 million increase in overhead costs and other discretionary expenses, partially offset by a $2.1 million decrease in pass-through fees, a $1.4 million decrease as a result of higher capitalized implementation costs and a $0.8 million decrease in amortization of acquired customer technology resulting from assets that became fully amortized.

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Cost of revenues increased by $14.0 million, or 5.8%, from $241.2 million for the nine months ended September 30, 2023 to $255.3 million for the nine months ended September 30, 2024. This increase was primarily attributable to a $6.9 million net increase in co-location facility, hardware and software costs, cloud-based hosting costs and depreciation of our data center assets resulting from the increased infrastructure necessary to support our growing customer activity, a $5.9 million increase in personnel costs, including an increase in the number of personnel who provide implementation and customer support services and maintain our data centers and other technical infrastructure, a $4.5 million increase from the amortization of capitalized software development and capitalized implementation services, a $2.1 million increase in third-party costs related to intellectual property included in our solutions and transaction processing costs and a $1.5 million increase in overhead costs and other discretionary expenses, partially offset by a $3.0 million decrease in services, primarily in pass-through fees, a $2.8 million decrease as a result of higher capitalized implementation costs and a $1.1 million decrease in amortization of acquired customer technology resulting from assets that became fully amortized.

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023. Sales and marketing expenses decreased by $3.7 million, or 6.5%, from $56.8 million for the six months ended June 30, 2023 to $53.2 million for the six months ended June 30, 2023. This decrease was primarily attributable to a $4.3 million reduction in personnel costs due to measures taken to drive drive operational effectiveness in our go-to-market strategy, partially offset by a $0.3 million increase in other discretionary expenses and a $0.3 million increase in marketing activities.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Sales and marketing expenses decreased by $0.6 million, or 2.2%, from $26.1 million for the three months ended September 30, 2023 to $25.6 million for the three months ended September 30, 2024. This decrease was primarily attributable to a $0.3 million decrease in travel-related and other discretionary expenses and a $0.3 million decrease in marketing activities.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. Sales and marketing expenses decreased by $1.0 million, or 3.4%, from $28.7 million for the three months ended June 30, 2023 to $27.7 million for the three months ended June 30, 2024. This decrease was primarily attributable to a $1.5 million reduction in personnel costs due to measures taken to drive operational effectiveness in our go-to-market strategy, partially offset by a $0.3 million increase in other discretionary expenses and a $0.3 million increase in marketing activities.

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Sales and marketing expenses decreased by $4.2 million, or 5.1%, from $83.0 million for the nine months ended September 30, 2023 to $78.7 million for the nine months ended September 30, 2023. This decrease was primarily attributable to a $4.2 million reduction in personnel costs due to measures taken to drive operational effectiveness in our go-to-market strategy.

Previous wording

We anticipate that sales and marketing expenses will increase in absolute dollars in the long-term as we continue to support our revenue growth and increase marketing spend to attract new customers, retain and grow existing customers, build brand awareness, and as we continue to hold in-person sales formats and experiences for future user conferences, including our annual client conference typically held during the second quarter. While we anticipate sales and marketing expenses as a percentage of revenue may fluctuate on a near-term basis, we expect such expenses to decline as a percentage of our revenues over the long-term as our revenues grow and we realize cost efficiencies in the business.

Current wording

We anticipate that sales and marketing expenses will increase in absolute dollars in the long-term as we continue to support our revenue growth and increase marketing spend to attract new customers, retain and grow existing customers, build brand awareness, and as we continue to hold various experiences for our current and prospective customers, including our annual client conference typically held during the second quarter. While we anticipate sales and marketing expenses as a percentage of revenue may fluctuate on a near-term basis, we expect such expenses to decline as a percentage of our revenues over the long-term as our revenues grow and we realize cost efficiencies in the business.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. Research and development expenses increased by $1.7 million, or 4.9%, from $34.1 million for the three months ended June 30, 2023 to $35.8 million for the three months ended June 30, 2024. This increase was primarily attributable to a $0.8 million increase in personnel costs as a result of the growth in our research and development organization to support continued enhancements to our solutions and a $0.7 million increase from lower capitalization of software development and implementation services costs.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Research and development expenses increased by $2.4 million, or 6.8%, from $34.5 million for the three months ended September 30, 2023 to $36.9 million for the three months ended September 30, 2024. This increase was primarily attributable to a $1.7 million increase in personnel costs as a result of the growth in our research and development organization to support continued enhancements to our solutions and a $0.4 million increase from lower capitalization of software development costs.

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023. Research and development expenses increased by $2.1 million, or 3.1%, from $68.5 million for the six months ended June 30, 2023 to $70.6 million for the six months ended June 30, 2024. This increase was primarily attributable to a $0.9 million increase from lower capitalization of software development and implementation services costs, a $0.5 million increase in personnel costs as a result of the growth in our research and development organization to support continued enhancements to our solutions and a $0.4 million increase in travel-related and other discretionary expenses.

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Research and development expenses increased by $4.5 million, or 4.3%, from $103.1 million for the nine months ended September 30, 2023 to $107.5 million for the nine months ended September 30, 2024. This increase was primarily attributable to a $2.2 million increase in personnel costs as a result of the growth in our research and development organization to support continued enhancements to our solutions, a $1.3 million increase from lower capitalization of software development costs and a $0.6 million increase in travel-related and other discretionary expenses.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. General and administrative expenses increased by $4.2 million, or 15.3%, from $27.1 million for the three months ended June 30, 2023 to $31.3 million for the three months ended June 30, 2024. The increase in general and administrative expenses was primarily attributable to a $5.6 million increase in personnel costs, including stock-based compensation, to support the growth of our business and a $0.8 million increase in travel-related and other discretionary expenses, partially offset by a $2.4 million decrease in professional services, including third-party legal fees.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. General and administrative expenses increased by $3.4 million, or 12.1%, from $28.1 million for the three months ended September 30, 2023 to $31.5 million for the three months ended September 30, 2024. The increase in general and administrative expenses was primarily attributable to a $3.8 million increase in personnel costs, including stock-based compensation, to support the growth of our business and a $0.6 million increase in other discretionary expenses, partially offset by a $1.2 million decrease in charitable contributions from the prior year.

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023. General and administrative expenses increased by $9.6 million, or 18.6%, from $51.8 million for the six months ended June 30, 2023 to $61.5 million for the six months ended June 30, 2024. The increase in general and administrative expenses was primarily attributable to an $10.7 million increase in personnel costs, including stock-based compensation, to support the growth of our business and a $1.2 million increase in travel-related and other discretionary expenses, partially offset by a $2.4 million decrease in professional services, including third-party legal fees.

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. General and administrative expenses increased by $13.1 million, or 16.3%, from $79.9 million for the nine months ended September 30, 2023 to $93.0 million for the nine months ended September 30, 2024. The increase in general and administrative expenses was primarily attributable to an $14.7 million increase in personnel costs, including stock-based compensation, to support the growth of our business and a $1.7 million increase in travel-related and other discretionary expenses, partially offset by a $2.3 million decrease in professional services, including third-party legal fees and a $1.2 million decrease in charitable contributions from the prior year.

Previous wording

General and administrative expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of our administrative, finance and accounting, information systems, legal, human resources employees and certain members of our executive team. General and administrative expenses also include costs to comply with regulations governing public companies and financial institutions, costs of directors' and officers' liability insurance, third-party legal fees, investor relations activities and costs to comply with Section 404 of the Sarbanes-Oxley Act, or SOX. Over the long term, we anticipate that general and administrative expenses will continue to increase in absolute dollars as we continue to incur both increased external audit fees as well as additional spending to ensure continued regulatory and SOX compliance. We expect such expenses to decline as a percentage of our revenues over the longer term as our revenues grow and we realize cost efficiencies in the business.

Current wording

General and administrative expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of our administrative, finance and accounting, information systems, compliance and security, legal, human resources employees and certain members of our executive team. General and administrative expenses also include costs to comply with regulations governing public companies and financial institutions, costs of directors' and officers' liability insurance, third-party legal fees, investor relations activities and costs to comply with Section 404 of the Sarbanes-Oxley Act, or SOX. Over the long term, we anticipate that general and administrative expenses will continue to increase in absolute dollars as we continue to incur both increased external audit fees as well as additional spending to ensure continued regulatory and SOX compliance. We expect such expenses to decline as a percentage of our revenues over the longer term as our revenues grow and we realize cost efficiencies in the business.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. Transaction-related costs decreased by $9.0 thousand, or 100.0% from $9.0 thousand for the three months ended June 30, 2023 to zero for the three months ended June 30, 2024. Transaction-related costs are related to various legal and professional expenses incurred in connection with merger and acquisition and divestiture activities.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Transaction-related costs decreased by $3.0 thousand, or 100.0% from $3.0 thousand for the three months ended September 30, 2023 to zero for the three months ended September 30, 2024. Transaction-related costs are related to various legal and professional expenses incurred in connection with merger and acquisition and divestiture activities.

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023. Transaction-related costs decreased by $21.0 thousand, or 100.0%, from $21.0 thousand for the six months ended June 30, 2023 to zero for the six months ended June 30, 2024. Transaction-related costs consisted of various legal and professional expenses incurred in connection with merger and acquisition and divestiture activities.

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Transaction-related costs decreased by $24.0 thousand, or 100.0%, from $24.0 thousand for the nine months ended September 30, 2023 to zero for the nine months ended September 30, 2024. Transaction-related costs consisted of various legal and professional expenses incurred in connection with merger and acquisition and divestiture activities.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. Amortization of acquired intangibles decreased by $0.5 million, or 8.8%, from $5.3 million for the three months ended June 30, 2023 to $4.8 million for the three months ended June 30, 2024. The acquired intangible assets are related to previously disclosed business combinations. The decrease in amortization is related to intangible assets that became fully amortized.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Amortization of acquired intangibles decreased by $0.5 million, or 9.0%, from $5.3 million for the three months ended September 30, 2023 to $4.8 million for the three months ended September 30, 2024. The acquired intangible assets are related to previously disclosed business combinations. The decrease in amortization is related to intangible assets that became fully amortized.

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023. Amortization of acquired intangibles decreased by $0.9 million, or 8.5%, from $10.5 million for the six months ended June 30, 2023 to $9.6 million for the six months ended June 30, 2024. The acquired intangible assets are related to previously disclosed business combinations. The decrease in amortization is related to intangible assets that became fully amortized.

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Amortization of acquired intangibles decreased by $1.4 million, or 8.7%, from $15.8 million for the nine months ended September 30, 2023 to $14.4 million for the nine months ended September 30, 2024. The acquired intangible assets are related to previously disclosed business combinations. The decrease in amortization is related to intangible assets that became fully amortized.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. Lease and other restructuring charges decreased by $1.3 million, or 58.2%, from $2.3 million for the three months ended June 30, 2023 to $1.0 million for the three months ended June 30, 2024. The decrease in lease and other restructuring charges was primarily attributable to a $0.9 million decrease related to severance and other related compensation charges associated with eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value and a $0.4 million decrease related to the impairment of the right of use asset during the prior year period.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Lease and other restructuring charges decreased by $0.2 million, or 5.3%, from $3.3 million for the three months ended September 30, 2023 to $3.1 million for the three months ended September 30, 2024. The decrease in lease and other restructuring charges was primarily attributable to a net $1.5 million decrease related to updated assessments and ongoing expenses of previously vacated facilities, including the associated impairment of the right of use asset, partially offset by a $1.3 million increase related to severance for the departure of an executive officer and compensation-related charges associated with restructuring or eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value.

Previous wording

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023. Lease and other restructuring charges decreased by $2.2 million or 51.0%, from $4.3 million for the six months ended June 30, 2023 to $2.1 million for the six months ended June 30, 2024. The decrease in lease and other restructuring charges was primarily attributable to a $1.7 million decrease related to the impairment of the right of use asset during the prior year period, a $0.8 million decrease related to severance and other related compensation charges associated with eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term values and a $0.4 million decrease due to the additional costs related to an updated assessment and ongoing expenses of various facilities during the prior year period.

Current wording

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Lease and other restructuring charges decreased by $2.4 million or 31.1%, from $7.6 million for the nine months ended September 30, 2023 to $5.2 million for the nine months ended September 30, 2024. The decrease in lease and other restructuring charges was primarily attributable to a net $2.8 million decrease related to updated assessments and ongoing expenses of previously vacated facilities, including the associated impairment of the right of use asset, partially offset by a $0.5 million increase related to severance for the departure of an executive officer and compensation-related charges associated with restructuring or eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value.

Previous wording

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. Total other income (expense), net represented a net income of $2.7 million for the three months ended June 30, 2024 compared to a net income of $0.5 million for the three months ended June 30, 2023. The change was primarily due to a $1.7 million increase in income from cash, cash equivalents and investments in the current period and a $0.2 million loss realized on the sale of fixed assets recognized in the prior year period.

Current wording

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Total other income, net represented a net income of $3.3 million for the three months ended September 30, 2024 compared to a net income of $1.0 million for the three months ended September 30, 2023. The change was primarily due to an increase in income from cash, cash equivalents and investments in the current period.