Q2 Holdings, Inc. Q3 FY2025 earnings

Q2 Holdings reported third-quarter fiscal 2025 revenue of $201.7 million, up 15.2% from the prior-year quarter. Gross profit rose 22.2% to $108.8 million, and GAAP gross margin reached 54.0%, up 3.1 percentage points. The company swung to an operating profit of $11.0 million from an operating loss a year earlier. Net income was $15.0 million, also a swing to profit from the prior-year quarter, and diluted EPS was $0.23, up $0.43. GAAP operating margin was 5.5%, up 12.8 percentage points. Management expects subscription revenue will continue to increase as a percentage of total revenue.

Cash generation remained solid. Operating cash flow was $45.6 million for the quarter, up 5.4%, and $137.8 million for the first nine months, up 48.6%. Capital expenditures were $2.7 million for the quarter, up 13.4%, and $4.8 million for the first nine months, down 8.4%. Deferred revenue, current portion, was $170.3 million, up 20.5%. Remaining performance obligations totaled $2.52 billion, up 24.1%. Subscription annualized recurring revenue reached $745.4 million, up 14%, and total annualized recurring revenue was $888.4 million. Registered Users were 27.0 million as of September 30, 2025, compared with 24.4 million a year earlier. Free cash flow for the first nine months was $116.8 million, a non-GAAP measure.

Non-GAAP results also improved. Adjusted EBITDA was $48.8 million, up from $32.6 million a year earlier, and adjusted EBITDA margin was 24.2%. Non-GAAP gross margin was 57.9%, up from 56.0%. After the quarter, Q2 announced a $150 million share repurchase authorization from its board. Management also announced leadership changes: Hima Mukkamala became Chief Operating Officer, Kirk Coleman became Chief Business Officer, and Mike Volanoski is departing after a transition period. The company said the changes are intended to align talent with its long-term strategy, including AI innovation.

Guidance for the fourth quarter includes adjusted EBITDA of $47.2 million to $50.2 million, representing 23 to 24 percent of revenue for the quarter. For full-year 2025, the company raised guidance, with adjusted EBITDA of $182.5 million to $185.5 million, representing 23 percent of revenue for the year. For 2026, Q2 provided a preliminary outlook of approximately 13.5% subscription revenue growth, adjusted EBITDA margin expansion of approximately 250 basis points, and at least 60% gross margin. The adjusted EBITDA guidance excludes items such as depreciation and amortization, stock-based compensation, transaction-related costs, interest and other income or expense, income taxes, lease and other restructuring charges, and non-recurring legal settlements not in the ordinary course.

Operational highlights included seven Enterprise and Tier 1 contracts, with an agreement with a Top 50 U.S. Enterprise bank for retail and small-to-medium sized bank digital banking solutions, an expansion with a Top 50 U.S. Enterprise bank for retail digital banking, and an expansion with an Enterprise bank for risk and fraud solutions. The company hosted its second annual Dev Days conference and highlighted AI offerings in development, including an AI copilot and AI-assisted coding. Risks include tariffs and trade measures, inflationary pressures, cyberattacks and financial transaction fraud, data and privacy breaches, competition, AI development challenges, banking sector mergers and acquisitions, elevated and fluctuating interest rates, regulatory changes such as the GENIUS Act, geopolitical instability, and debt repayment obligations. Revenue churn was 4.4% for 2024, while net revenue retention was 109% and subscription net revenue retention was 114% for 2024. Management also noted variability in customer demand for discretionary professional services.