Q2 Holdings Inc
For the period ended Mar 31, 2025. Filed May 7, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 7, 2025
QTWO$73.92-2.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-06.
0001410384-24-000197
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-07.
0001410384-25-000094
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 158 previous paragraphs and 138 current paragraphs.
79 unchanged; 50 reworded; 8 added; 25 removed; 4 previous and 1 current paragraphs rearranged.
Tables are not compared: 16 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (8)
Current report
The recent imposition by the United States of additional tariffs in March 2025 on a broad range of imports from multiple countries, and the potential for further expansion of such tariffs, including retaliatory tariffs being imposed by foreign countries, has introduced new uncertainty into the global trade environment. Although our operations do not involve the direct purchase of significant volumes of goods or raw materials from outside the United States, and we do not manufacture or inventory physical products, these trade measures may indirectly affect our business. For example, continued or escalating tariffs may contribute to inflationary pressures or impact the cost structures of our third-party service providers, cloud infrastructure partners or customers, which could affect demand for our solutions and services or increase our cost of service delivery over time.
Current report
To date, these developments have not had a material impact on our operations or financial performance. However, we continue to monitor the evolving trade landscape, including any additional tariffs or retaliatory measures that may arise, given the potential for broader macroeconomic implications and downstream effects on the financial services industry.
Current report
•Non-recurring legal settlements. We exclude certain legal settlement costs that we deem not to be in the ordinary course of our business operations ("non-recurring legal settlements"). In March 2025, the Company entered into a settlement agreement to settle a dispute with a former commercial real estate broker related to commissions for the lease of its current headquarters, pursuant to which the Company agreed to pay $1.8 million to settle the matter in full. We believe excluding this amount from our non-GAAP financial measures provides meaningful insight and allows users of our financial statements to better review and understand the historical and current results of our continuing operations, and also facilitates comparisons to our historical results and results to peer companies, both with and without such adjustments.
Current report
The following table presents a reconciliation of GAAP operating income (loss) to non-GAAP operating income for each of the periods indicated (in thousands):
Current report
Sales and marketing expenses increased by $1.1 million, or 4.3%, from $25.4 million for the three months ended March 31, 2024 to $26.5 million for the three months ended March 31, 2025. This increase was primarily attributable to a $0.5 million increase in personnel costs and a $0.5 million increase in travel-related and other discretionary expenses.
Current report
General and administrative expenses increased by $2.1 million, or 7.1%, from $30.2 million for the three months ended March 31, 2024 to $32.3 million for the three months ended March 31, 2025. The increase in general and administrative expenses was primarily attributable to a $1.8 million non-recurring legal settlement charge related to certain litigation as discussed in Note 8 - Commitments and Contingencies and a $0.4 million increase in personnel costs to support the growth of our business.
Current report
Total other income, net increased by $1.2 million, or 60.8%, from $1.9 million for the three months ended March 31, 2024 to $3.1 million for the three months ended March 31, 2025. The increase was primarily driven by interest income earned from increased balances in our cash, cash equivalents and investments during the current period.
Current report
Total provision for income taxes decreased by $1.1 million, or 68.7%, from $1.6 million for the three months ended March 31, 2024 to $0.5 million for the three months ended March 31, 2025. The decrease was primarily driven by a $0.5 million decrease in federal income taxes, a $0.4 million decrease in state income taxes and a $0.2 million decrease in foreign tax.
Removed paragraphs (25)
Previous report
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 report
Non-GAAP Revenue
Previous report
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 report
Transaction-Related Costs
Previous report
Transaction-related costs include compensation expenses related to milestone provisions and retention agreements with certain former shareholders and employees of acquired businesses, which are recognized as earned, and various legal and professional service expenses incurred in connection with merger and acquisition and divestiture related matters, which are recognized when incurred.
Previous report
(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 report
(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 report
(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 report
(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 report
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 report
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 report
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 report
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 report
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 report
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 report
Transaction-Related Costs
Previous report
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 report
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 report
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 report
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 report
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.
Previous report
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Total other income, net represented a net income of $7.9 million for the nine months ended September 30, 2024 compared to a net income of $22.2 million for the nine months ended September 30, 2023. The change was primarily due to a $19.9 million gain from the partial repurchase of the 2026 Notes and the 2025 Notes during the three months ended March 31, 2023, partially offset by a $4.5 million increase in income from cash, cash equivalents and investments in the current period, a $0.5 million loss realized on investments recognized in the prior year period and a $0.2 million realized loss on the sale of fixed assets recognized during the prior year period.
Previous report
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023. Total provision for income taxes represented an expense of $2.3 million for the three months ended September 30, 2024 compared to an expense of $1.0 million for the three months ended September 30, 2023. As a result of our current net operating loss position, income tax expense for the three months ended September 30, 2024 consisted primarily of $1.2 million in foreign income tax expense, $0.6 million in federal income tax and $0.5 million in state income tax. The income tax expense for the three months ended September 30, 2023 consisted primarily of $0.5 million in tax amortization of recently acquired goodwill, $0.3 million in foreign income tax and $0.2 million in state income tax.
Previous report
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023. Total provision for income taxes represented an expense of $5.9 million for the nine months ended September 30, 2024 compared to an expense of $1.5 million for the nine months ended September 30, 2023. As a result of our current net operating loss position, income tax expense for the nine months ended September 30, 2024 consisted primarily of $2.4 million in foreign income tax, $2.2 million in state income tax and $1.3 million in federal income tax expense. The income tax expense for the nine months ended September 30, 2023 consisted primarily of $0.7 million in foreign income tax, $0.6 million in tax amortization of recently acquired goodwill and $0.2 million in state income tax.
Previous report
For the nine months ended September 30, 2023, our net cash used in financing activities was $156.1 million, primarily consisting of $149.6 million from payments for the partial repurchases of the 2026 Notes and 2025 Notes and $10.9 million from payment of the 2023 Notes which matured in February 2023, partially offset by $4.3 million in cash received from exercises of stock options and contributions to our ESPP to purchase our common stock.
Reworded paragraphs (50)
Previous wording
We are 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 cloud-native core that also serves as a comprehensive banking as a service, or BaaS, solution, 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.
Current wording
We are a leading provider of digital solutions to financial institutions, financial technology companies, or FinTechs, and alternative finance companies, or Alt-FIs, seeking 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 End Users. Our solutions comprise a broad and deep portfolio of digital banking solutions, digital lending and relationship pricing solutions, Q2 Innovation Studio and Helix. Q2 Innovation Studio leverages Q2's open technology platform to enable a partnership ecosystem, allowing the design, development and distribution of innovative products, services, features and integrations on Q2's digital banking platform. Helix serves as a cloud-native core and banking as a service, or BaaS, solution. We purpose-build our platforms and solutions to enable success for our customers and 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.
Previous wording
Significant resources, personnel and expertise are required to effectively deliver and manage advanced digital banking and lending solutions in the complex and heavily regulated financial services industry. 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 and our data center infrastructure and resources 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.
Current wording
Significant resources, personnel and expertise are required to effectively deliver and manage advanced digital solutions in the complex and heavily regulated financial services industry. 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 and our data center and cloud-based hosting infrastructure and resources 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.
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 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.
Current wording
Founded 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 innovation, broad market acceptance of our solutions, strategic investments and acquisitions. Our expanded collection of solutions now spans digital banking, digital lending and relationship pricing, regulatory and compliance, risk and fraud, account switching, data-driven sales enablement, spending insights and portfolio management, and also includes our open platform solutions as well as our core and BaaS offerings. We serve account holders and borrowers across retail, small to medium business, or SMBs and commercial segments. While we continue to generate a substantial majority of our revenue from our digital banking platform, we are actively leveraging our broader product portfolio and deep domain expertise to expand our market presence. This strategy includes seeking to further penetrate the digital banking market and drive significant growth across our diverse customer base in the broader financial services sector, while opening up new and meaningful expansion opportunities for our business.
Previous wording
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.
Current wording
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 embracing these market dynamics. We have developed a comprehensive suite of offerings to accelerate and optimize this transformation for our customers, ranging from digitizing entire banks to facilitating partnerships between financial institutions, FinTechs and Alt-FIs.
Previous wording
We deliver our solutions to most of our customers using a software-as-a-service, or SaaS, model under which our customers pay subscription fees for the use of our solutions. Our digital banking platform customers have numerous End Users, and those End Users can represent one or more account holders registered to use one or more of our solutions on our digital banking platform. We generally price our digital banking platform solutions based on the number of solutions purchased by our customers and the number of Registered Users, as defined in "Key Operating Measures" below, or commercial account holders utilizing our solutions. We generally earn additional revenues from our digital banking platform customers based on the number of End Users on our solutions, the number of transactions that End Users perform on our solutions, and the excess number of users and transactions above what is included in our standard subscription fee. As a result, our revenues from digital banking platform customers grow 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.
Current wording
We offer our solutions to most of our customers using a software-as-a-service, or SaaS, model under which our customers pay subscription fees for the use of our solutions. Our digital banking platform customers have numerous End Users, and those End Users can represent one or more account holders registered to use one or more of our solutions on our digital banking platform. We generally price our digital banking platform solutions based on the number of solutions purchased by our customers and the number of Registered Users, as defined in "Key Operating Measures" below, or commercial account holders utilizing our solutions. We generally earn additional revenues from our digital banking platform customers based on the number of End Users on our solutions, the number of transactions that End Users perform on our solutions and the excess number of users and transactions above what is included in our standard subscription fee. As a result, our revenues from digital banking platform customers grow 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.
Previous wording
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. 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 have also introduced the Q2 Innovation Studio, an API-based and SDK-based open technology platform that 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.
Current wording
We have continuously invested in expanding and improving our digital banking platform since we introduced it in 2005. 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 markets. We have also 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 portfolio of digital solutions includes a comprehensive suite of offerings for retail, SMB and commercial banking, onboarding, regulatory and compliance, risk and fraud, digital lending and relationship pricing, open platform solutions, BaaS, account switching and data-driven sales enablement, spending insights and portfolio management solutions, among others. We believe our portfolio, which reflects years of strategic development and innovation, affords us a distinct competitive advantage across multiple market segments. Additionally, Q2 Innovation Studio, an API-based and SDK-based open technology platform, allows our financial institution customers and other 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.
Previous wording
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.
Current wording
We believe that financial services providers are best served by a broad portfolio of digital solutions offering rapid, flexible and comprehensive integration with internal and third-party solutions enabling them to deliver modern, intuitive, advanced and regulatory-compliant digital solutions. We also believe our unique position in the market stems from 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 solutions. These strengths allow us to address the evolving needs and challenges within the financial services industry, as we continually innovate and adapt our offerings to meet the changing demands of our customers and their End Users. We intend to continue to make investments in technology innovation and software development to enhance our existing solutions and platforms while expanding our product portfolio.
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 economic uncertainty and the current challenges facing the financial services industry on our business.
Current wording
The duration and severity of these and other 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 Installed Customers as the number of customers on live implementations (or installations) of our digital banking platforms. The average size of our Installed Customers, measured in both Registered Users per Installed Customer and revenues per Installed Customer, has increased over time as our existing Installed Customers continue to add Registered Users and commercial account holders, buy more solutions from us, and as we add larger financial institutions to our Installed Customer base. The net rate at which we add Installed Customers varies based on our implementation capacity, the size and unique needs of our customers, the readiness of our customers to implement our solutions and customer attrition, including as a result of merger and acquisition activity among financial institutions. We had 450, 444 and 448 Installed Customers on our digital banking platform as of December 31, 2023, 2022 and 2021, respectively.
Current wording
We define Installed Customers as the number of customers live on our digital banking platform. The average size of our Installed Customers, measured in both Registered Users per Installed Customer and revenues per Installed Customer, has increased over time as our existing Installed Customers continue to add Registered Users and commercial account holders, buy more solutions from us, and as we add larger financial institutions to our Installed Customer base. The net rate at which we add Installed Customers varies based on our implementation capacity, the size and unique needs of our customers, the readiness of our customers to implement our solutions and customer attrition, including as a result of merger and acquisition activity among financial institutions. We had 460, 450 and 444 Installed Customers on our digital banking platform as of December 31, 2024, 2023 and 2022, respectively.
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 September 30, 2024 were 24.4 million compared to 22.0 million as of September 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. 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 24.7 million, 22.0 million and 21.1 million Registered Users as of December 31, 2024, 2023 and 2022, respectively. Registered Users as of March 31, 2025 were 26.2 million compared to 23.0 million as of March 31, 2024.
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 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.
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 and subscription net revenue retention rate, or collectively our net revenue retention rates. 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. Similarly, we calculate our subscription net revenue retention rate as total subscription revenues in a calendar year from customers who were implemented on any of our solutions as of December 31 of the prior year, expressed as a percentage of total subscription revenues for the prior year from the same group of customers. Our net revenue retention rates provide 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 rates 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. As an example, if implementations are weighted more heavily in the first or second half of the prior year, both our net revenue retention rate and subscription net revenue retention rate will be lower or higher, respectively, in the subsequent year. Our use of net revenue retention rate and subscription net revenue retention rate have limitations as analytical tools, and investors should not consider them in isolation. Other companies in our industry may calculate net revenue retention rates differently, which reduces their usefulness as a comparative measure. Our net revenue retention rate was 109%, 108% and 110% for the years ended December 31, 2024, 2023 and 2022, respectively, and our subscription net revenue retention rate was 114%, 112% and 115% for the years ended December 31, 2024, 2023 and 2022, respectively.
Previous wording
We believe Subscription Annual Recurring Revenue, or Subscription ARR, and Total Annual Recurring Revenue, or Total ARR, provide important information about our future revenue potential, our ability to acquire new clients, and our ability to maintain and expand our relationship with existing clients. We calculate Subscription ARR as the annualized value of all recurring subscription revenue recognized in the last month of the reporting period, with the exception of variable revenue in excess of contracted amounts for which we instead take the average monthly run rate of the trailing three months within that reporting period. Our Subscription ARR also includes the contracted minimum subscription amounts associated with all contracts in place at the end of the quarter for which revenue recognition has not yet commenced. Subscription revenues are defined within "Critical Accounting Policies and Significant Judgements and Estimates" in our Form 10-K. We calculate Total ARR as the annualized value of all recurring revenue recognized in the last month of the reporting period, with the exception of variable revenue in excess of contracted amounts for which we instead take the average monthly run rate of the trailing three months within that reporting period. Our Total ARR also includes the contracted minimums associated with all contracts in place at the end of the quarter for which revenue recognition has not yet commenced, and revenue generated from Integrated Services, which we previously referred to as Premier Services. Integrated Services revenue is generated from select established customer relationships where we have engaged with the customer for more tailored, premium professional services resulting in a deeper and ongoing level of engagement with them, which we deem to be recurring in nature. Total ARR does not include revenue from professional services or other sources of revenue that are not deemed to be recurring in nature. Subscription and Total ARR are not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates. Subscription and Total ARR should be viewed independently of revenue and deferred revenue as Subscription and Total ARR are operating metrics and are not intended to be combined with or replace these items. Our use of Subscription and Total ARR has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate Subscription ARR and Total ARR differently, which reduces their usefulness as comparative measures.
Current wording
We believe Subscription Annual Recurring Revenue, or Subscription ARR, and Total Annual Recurring Revenue, or Total ARR, provide important information about our future revenue potential and our ability to maintain and expand our relationship with existing clients. We calculate Subscription ARR as the annualized value of all recurring subscription revenue recognized in the last month of the reporting period, with the exception of variable revenue in excess of contracted amounts for which we instead take the average monthly run rate of the trailing three months within that reporting period. Our Subscription ARR also includes the contracted minimum subscription amounts associated with all contracts in place at the end of the quarter for which revenue recognition has not yet commenced. Subscription revenues are defined within "Critical Accounting Policies and Significant Judgements and Estimates" in our Form 10-K. We calculate Total ARR as the annualized value of all recurring revenue recognized in the last month of the reporting period, with the exception of variable revenue in excess of contracted amounts for which we instead take the average monthly run rate of the trailing three months within that reporting period. Our Total ARR also includes the contracted minimums associated with all contracts in place at the end of the quarter for which revenue recognition has not yet commenced, and revenue generated from Integrated Services, which we previously referred to as Premier Services. Integrated Services revenue is generated from select established customer relationships where we have engaged with the customer for more tailored, premium professional services resulting in a deeper and ongoing level of engagement with them, which we deem to be recurring in nature. Total ARR does not include revenue from professional services or other sources of revenue that are not deemed to be recurring in nature. Subscription and Total ARR are not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates. Subscription and Total ARR should be viewed independently of revenue and deferred revenue as Subscription and Total ARR are operating metrics and are not intended to be combined with or replace these items. Our use of Subscription and Total ARR has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate Subscription ARR and Total ARR differently, which reduces their usefulness as comparative measures.
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 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.
Current wording
Our Subscription ARR was $681.9 million, $593.9 million and $500.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. Subscription ARR as of March 31, 2025 was $702.4 million compared to $615.1 million as of March 31, 2024. Our Total ARR was $824.2 million, $734.8 million and $655.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. Total ARR as of March 31, 2025 was $846.6 million compared to $761.0 million as of March 31, 2024.
Previous wording
We utilize revenue churn to monitor the satisfaction of our customers and evaluate the effectiveness of our business solutions and strategies. We define revenue churn as the amount of any monthly recurring revenue losses due to customer cancellations and downgrades, net of upgrades and replacements of existing solutions, during a year, divided by our monthly recurring revenue at the end of the prior year. Cancellations refer to customers that have either stopped using our services completely or remained a customer but terminated a particular service. Downgrades are a result of customers taking less of a particular service or renewing their contract for identical services at a lower price. We had annual revenue churn of 6.1%, 6.3% and 5.4% for the years ended December 31, 2023, 2022 and 2021, respectively. Our use of revenue churn has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate revenue churn differently, which reduces its usefulness as a comparative measure.
Current wording
We utilize revenue churn to monitor the satisfaction of our customers and evaluate the effectiveness of our business solutions and strategies. We define revenue churn as the amount of any monthly recurring revenue losses due to customer cancellations and downgrades, net of upgrades and replacements of existing solutions, during a year, divided by our monthly recurring revenue at the end of the prior year. Cancellations refer to customers that have either stopped using our services completely or remained a customer but terminated a particular service. Downgrades are a result of customers taking less of a particular service or renewing their contract for identical services at a lower price. We had annual revenue churn of 4.4%, 6.1% and 6.3% for the years ended December 31, 2024, 2023 and 2022, respectively. Our use of revenue churn has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate revenue churn differently, which reduces its usefulness as a comparative measure.
Previous wording
In addition to financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding, and aid in the period-to-period comparison, of our performance. We believe that these non-GAAP financial measures provide supplemental information that is meaningful when assessing our operating performance because they exclude the impact of certain categories that our management and board of directors do not consider part of core operating results when assessing our operational performance, allocating resources, preparing annual budgets and determining compensation. Accordingly, these non-GAAP financial measures may provide insight to investors into the motivation and decision-making of management in operating the business. Set forth in the tables below are the corresponding GAAP financial measures for each non-GAAP financial measure. Investors are encouraged to review the reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure included below. While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures. Items such as the deferred revenue reduction from purchase accounting, stock-based compensation, transaction-related costs, amortization of acquired technology, amortization of acquired intangible assets and lease and other restructuring charges can have a material impact on our GAAP financial results.
Current wording
In addition to financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding, and aid in the period-to-period comparison, of our performance. We believe that these non-GAAP financial measures provide supplemental information that is meaningful when assessing our operating performance because they exclude the impact of certain categories that our management and board of directors do not consider part of core operating results when assessing our operational performance, allocating resources, preparing annual budgets and determining compensation. Accordingly, these non-GAAP financial measures may provide insight to investors into the motivation and decision-making of management in operating the business. Set forth in the tables below are the corresponding GAAP financial measures for each non-GAAP financial measure. Investors are encouraged to review the reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure included below. While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures. Items such as the deferred revenue reduction from purchase accounting, stock-based compensation, transaction-related costs, amortization of acquired technology, amortization of acquired intangible assets, lease and other restructuring charges and non-recurring legal settlements can have a material impact on our GAAP financial results. Beginning in the year ended December 31, 2024, because there was no impact of purchase accounting on revenue, our non-GAAP total revenue is now equivalent to our GAAP total revenue, and we have therefore not reported non-GAAP total revenue.
Previous wording
We provide non-GAAP operating income that excludes such items as deferred revenue reduction from purchase accounting, stock-based compensation, transaction-related costs, amortization of acquired technology, amortization of acquired intangible assets and lease and other restructuring charges. We believe excluding these items is useful for the following reasons:
Current wording
We provide non-GAAP operating income that excludes such items as deferred revenue reduction from purchase accounting, stock-based compensation, transaction-related costs, amortization of acquired technology, amortization of acquired intangible assets, lease and other restructuring charges and non-recurring legal settlements. There was no deferred revenue reduction from purchase accounting or transaction-related costs in either of the three months ended March 31, 2025 or 2024. We believe excluding these items is useful for the following reasons:
Previous 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:
Current wording
We define adjusted EBITDA as net income (loss) before stock-based compensation, transaction-related costs, depreciation, amortization, lease and other restructuring charges, non-recurring legal settlements, provision for income taxes and interest and other (income) expense, net. There were no transaction-related costs in either of the three months ended March 31 2025 or 2024. 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
Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. The use of adjusted EBITDA as an analytical tool has limitations such as:
Current wording
Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other measure of financial performance calculated and presented in accordance with GAAP. The use of adjusted EBITDA as an analytical tool has limitations such as:
Previous wording
Because of these and other limitations, you should consider adjusted EBITDA together with our GAAP financial measures including cash flow from operations and net loss. The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated (in thousands):
Current wording
Because of these and other limitations, investors and others should consider adjusted EBITDA together with our GAAP financial measures including cash flow from operations and net income (loss). The following table presents a reconciliation of net income (loss) to adjusted EBITDA for each of the periods indicated (in thousands):
Previous wording
Revenue-generating activities directly relate to the sale, implementation and support of our solutions within a single operating segment. We derive the majority of our revenues from subscription fees for the use of our solutions hosted in either our data centers or with cloud-based service providers, transactional revenue from bill-pay solutions and remote deposit products, revenues for professional services and implementation services related to our solutions and certain third-party related pass-through fees. We recognize the corresponding revenues over time on a ratable basis over the customer agreement term or as incurred based on the nature of the revenue. A small portion of our revenues are derived from customers which host and manage our solutions on-premises or in third-party data centers under term license and maintenance agreements. For these customers, we recognize software license revenue once the customer obtains control of the license, which generally occurs at the start of each license term. For these customers, we recognize the remaining arrangement consideration for maintenance revenue over time on a ratable basis over the term of the software license.
Current wording
Revenue-generating activities directly relate to the sale, implementation and support of our solutions within a single operating segment. We derive the majority of our revenues from subscription fees for the use of our solutions hosted in either our third-party data centers or with third-party public cloud service providers, transactional revenue from bill-pay solutions and remote deposit products, revenues for professional services and implementation services related to our solutions and certain third-party related pass-through fees. We recognize the corresponding revenues over time on a ratable basis over the customer agreement term or as incurred based on the nature of the revenue. A small portion of our revenues are derived from customers which host and manage our solutions on-premises or in third-party data centers under term license and maintenance agreements. For these customers, we recognize software license revenue once the customer obtains control of the license, which generally occurs at the start of each license term, and recognize the remaining arrangement consideration for maintenance revenue over time on a ratable basis over the term of the software license.
Previous wording
Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, for employees providing services to our customers. This includes the costs of our personnel performing implementation, customer support, data center and customer training activities. Cost of revenues also includes the direct costs of bill-pay and other third-party intellectual property included in our solutions, the amortization of deferred solution and services costs, amortization of certain software development costs, co-location facility costs and depreciation of our data center assets, debit card related pass-through fees, cloud-based hosting services, an allocation of general overhead costs, the amortization of acquired technology intangibles and referral fees. We allocate general overhead expenses to all departments based on the number of employees in each department, which we consider to be a fair and representative means of allocation.
Current wording
Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, for employees providing services to our customers. This includes the costs of our personnel performing implementation, customer support, third-party data centers and customer training activities. Cost of revenues also includes the direct costs of bill-pay and other third-party intellectual property included in our solutions, the amortization of deferred solution and services costs, amortization of certain software development costs, co-location facility costs and depreciation of our data center assets, debit card related pass-through fees, third-party public cloud service providers, an allocation of general overhead costs, the amortization of acquired technology intangibles and referral fees. We allocate general overhead expenses to all departments based on the number of employees in each department, which we consider to be a fair and representative means of allocation.
Previous wording
Operating expenses primarily consist of sales and marketing, research and development and general and administrative expenses. They also include costs related to our acquisitions and the resulting amortization of acquired intangible assets from those acquisitions. We have from time-to-time experienced difficulty in hiring and retaining highly skilled employees with appropriate qualifications, resulting in increased personnel costs due to competition for talent and the related pressure to improve employee benefits and compensation to remain competitive. In an effort to reduce certain of our personnel related expenditures and improve the scaling of expenses relative to revenue growth, we have increased the efficiency of our global workforce structure. Over the long term, we intend to continue to hire new employees and make other investments to support our anticipated growth. As a result, we expect our operating expenses to increase in absolute dollars but to decrease as a percentage of revenues over the long term as we grow our business.
Current wording
Operating expenses primarily consist of sales and marketing, research and development and general and administrative expenses. They also include costs related to our acquisitions and the resulting amortization of acquired intangible assets from those acquisitions. In an effort to reduce certain of our personnel related expenditures and improve the scaling of expenses relative to revenue growth, we have taken measures intended to increase the cost efficiency of our global workforce structure. Over the long term, we intend to continue to hire new employees and make other investments to support our anticipated growth. As a result, we expect our operating expenses to increase in absolute dollars but to decrease as a percentage of revenues over the long term as we grow our business.
Previous wording
Certain research and development costs that are related to our software development, which include salaries and other personnel-related costs, comprised of employee benefits, stock-based compensation and bonuses attributed to programmers, software engineers and quality control teams working on our software solutions, are capitalized and included in intangible assets, net on the condensed consolidated balance sheets. We intend to continue our investments in our software development teams and the associated technology in order to serve our customers and support our growth.
Current wording
Certain research and development costs that are related to our software development, which include salaries and other personnel-related costs, comprised of employee benefits, stock-based compensation and bonuses attributed to programmers, software engineers and quality control teams working on our software solutions, are capitalized and included in intangible assets, net on the condensed consolidated balance sheets.
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, 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.
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 the majority of our executive team. General and administrative expenses also include consulting and professional fees, travel and other corporate expenses to comply with regulations governing public companies and financial institutions.
Previous 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.
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 and interest 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
As a result of our current net operating loss position, our income tax expenses and benefits consist primarily of state current income tax expense, deferred income tax expense relating to the tax amortization of recently acquired goodwill and current income tax expense from foreign operations.
Current wording
Our income tax expenses and benefits consist primarily of federal, state, and international current and deferred income tax expense from global operations.
Previous 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.
Current wording
(1)Includes amortization of acquired technology of $5.5 million for each of the three months ended March 31, 2025 and 2024.
Previous 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.
Current wording
(1)Includes amortization of acquired technology of 2.9% and 3.3% for the three months ended March 31, 2025 and 2024, respectively.
Previous wording
Comparison of the Three and Nine Months Ended September 30, 2024 and 2023
Current wording
Comparison of the Three Months Ended March 31, 2025 and 2024
Previous 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.
Current wording
Revenues increased by $24.2 million, or 14.6%, from $165.5 million for the three months ended March 31, 2024 to $189.7 million for the three months ended March 31, 2025. This increase in revenue was primarily attributable to a $23.9 million increase in subscription revenue from the sale of additional solutions to new and existing customers and growth in expansions with existing customers and a $1.6 million increase in transactional revenue from usage of our solutions, partially offset by a decrease of $1.3 million in services and other revenue from declines in professional and discretionary services and Helix related pass-through revenue.
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 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.
Current wording
We believe that elevated interest rates have increased the importance for financial institutions to attract and retain depository relationships, which we believe has increased demand for our digital banking solutions. We have observed improved subscription bookings and associated revenue primarily from our digital banking solutions, which we believe is a result of banking conditions placing an importance on attracting and retaining deposits. As of the three months ended March 31, 2025, our subscription revenue growth was 18% year over year, and we expect subscription revenue will continue to increase as a percentage of total revenue. We continue to observe declines in customer demand for certain discretionary aspects of our solutions, namely professional services, which we believe are related to customer spending patterns and budget cycles, and will likely continue until the general economic outlook improves.
Previous 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.
Current wording
Cost of revenues increased by $5.5 million, or 6.6%, from $83.3 million for the three months ended March 31, 2024 to $88.7 million for the three months ended March 31, 2025. This increase was primarily attributable to a $3.5 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 $1.9 million net increase in third-party public cloud service provider costs, co-location facility costs and software costs resulting from the increased infrastructure necessary to support growing customer activity and migration to third-party public cloud service providers, a $1.5 million increase from the amortization of capitalized software development and capitalized implementation services and a $0.3 million increase in overhead costs and other discretionary expenses, partially offset by a $1.2 million decrease as a result of higher capitalized implementation costs and a $0.5 million decrease in services, primarily in pass-through and bill-pay fees.
Previous wording
We intend to continue to increase our investments in our implementation and customer support teams and technology infrastructure to serve our customers and support our growth. Over the long term, we expect cost of revenues to continue to grow in absolute dollars as we grow our business but to fluctuate as a percentage of revenues based principally on cost efficiencies realized in the business, the level and timing of implementation support activities, timing of capitalized software development costs, debit card related pass-through fees, and other related costs.
Current wording
We intend to continue to invest in our implementation and customer support teams and third-party partners for intellectual property and transactional processing in our solutions and technology infrastructure to standardize our business processes and drive future efficiency in our implementations, serve our customers and support our growth as we continue the migration of a significant portion of the computing, storage and processing of our digital banking platform solutions from our third-party data centers to third-party public cloud service providers. As we continue to make these investments over the long term, we expect they will increase cost of revenues in absolute dollars as we grow our business, and we expect such expenses to decline as a percentage of revenue, based on cost efficiencies realized in the business, the level and timing of implementation support activities, timing of capitalized software development costs, debit card related pass-through fees and other related costs.
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 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.
Current wording
Sales and marketing expenses as a percentage of total revenues may change in any given period based on factors such as the addition of newly hired sales professionals, the timing of significant marketing events such as our annual in-person client conference, which we typically hold during the second quarter of each year, and the amount of sales commissions expense amortized. Commissions are generally capitalized and then amortized over the expected period of customer benefit. 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 business with existing customers, build brand awareness, and as we continue to hold various experiences for our current and prospective customers. While 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
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.
Current wording
Research and development expenses increased by $3.0 million, or 8.6%, from $34.9 million for the three months ended March 31, 2024 to $37.9 million for the three months ended March 31, 2025. This increase was primarily attributable to a $1.4 million increase from lower software development and implementation services costs due to lower capitalized hours and the strategic realignment and expansion of our global innovation capabilities, a $1.0 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 $0.5 million increase in other discretionary expenses.
Previous wording
We anticipate that research and development expenses will increase in absolute dollars in the future as we continue to support and expand our platform and enhance our existing solutions, as we believe existing customers will have an increased focus on maintaining and improving their digital offerings. While we anticipate research and development 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 intend to continue our investments in our software development teams and the associated technology in order to serve our customers and support our growth. We anticipate that research and development expenses will increase in absolute dollars in the future as we continue to support and expand our platform and enhance our existing solutions, as we believe existing customers will have an increased focus on maintaining and improving their digital offerings. While research and development 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
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.
Current wording
We expect to continue to incur incremental expenses associated with the growth of our business and compliance requirements associated with operating as a regulated, public company. 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 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.
Current wording
Amortization of acquired intangibles decreased by $4.7 million, or 98.1%, from $4.8 million for the three months ended March 31, 2024 to $0.1 million for the three months ended March 31, 2025. The acquired intangible assets are related to previously disclosed business combinations, and the decrease in amortization is related to intangible assets that became fully amortized.
Previous 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.
Current wording
Lease and other restructuring charges increased by $0.9 million, or 78.2%, from $1.1 million for the three months ended March 31, 2024 to $2.0 million for the three months ended March 31, 2025. The increase in lease and other restructuring charges was primarily attributable to a $1.2 million increase related to severance for 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, partially offset by a net $0.4 million decrease related to updated assessments and ongoing expenses of previously vacated facilities.
Previous wording
Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, including the timing of investments to grow our business. The timing of our implementation activities and corresponding revenues from new customers are subject to fluctuations based on the timing of our sales, which has historically tended to be lower in the first half of the year. The timing of our implementations also 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.
Current wording
Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, including the timing of investments to grow our business. The timing of our implementation activities and corresponding revenues from new customers are subject to fluctuations based on the timing of our sales, which has historically tended to be lower in the first half of the year. The timing of our implementations also 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. General economic conditions and other global events may impact our business and our customers' spending patterns and budget cycles, and these conditions may disrupt any seasonality trends that may otherwise typically be inherent in our historical operating results. Our quarterly results of operations may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future results.
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Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
For the three months ended March 31, 2024, our net cash provided by financing activities was $8.4 million due to cash received from exercises of stock options.
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
Sales and marketing expenses as a percentage of total revenues will change in any given period based on several factors including the addition of newly hired sales professionals, the number and timing of newly installed customers and the amount of sales commissions expense amortized related to those customers. Commissions are generally capitalized and then amortized over the expected period of customer benefit. Sales and marketing expenses are impacted by the timing of significant marketing events such as our annual in-person client conference, which we typically hold during the second quarter of each year.
Previous report — wording carried elsewhere
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 report — wording carried elsewhere
We continue to invest in personnel, business process improvement, third-party partners for intellectual property and transactional processing in our solutions and systems infrastructure to standardize our business processes and drive future efficiency in our implementations, cloud-based hosting services, customer support and data center operations. As we continue to make these investments, we expect they will increase cost of revenues in absolute dollars, and we expect such expenses to decline as a percentage of revenue as our operations continue to scale and revenues grow.
Previous report — wording carried elsewhere
Our quarterly results of operations may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future results. We continue to monitor the impacts the current interest rate and inflationary environment, challenges in the financial services industry, and global economic uncertainty may have on our business. The recent challenging economic conditions and uncertainties in the financial services industry continue to be highly unpredictable and may continue to disrupt any seasonality trends that may otherwise typically be inherent in our historical operating results.