Q2 Holdings, Inc. (QTWO) Q3 2026 Earnings Call Transcript

Operator: Good afternoon. My name is Kevin and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings Third Quarter 26 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Q&A session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand. And 6 to unmute when called upon. Thank you. I will now hand the conference over to Josh Yankovich, Investor Relations. Sir, please begin.

Josh Yankovich: Thank you, operator. Good afternoon, everyone. Thank you for joining us today. With me on the call are Matthew Flake, our CEO, and Jonathan A. Price, our CFO. This call contains forward looking statements that are subject to significant risks and uncertainties. Including, among other things, statements with respect to our expectations for the future operating and financial performance of Q2 Holdings and for the financial services industry. Actual results may differ materially from those contemplated by these forward looking statements. We give no assurance that such expectations any of our forward looking statements will prove to be correct. Important factors that could cause actual results to differ materially, from those reflected in the forward looking statements are included in our periodic reports filed with the SEC, copies of which may be found on the Investor Relations section of our website including our quarterly report on Form 10 Q for the third quarter of 26 and the press release distributed this afternoon and filed in our Form 8-Ks with the SEC regarding the financial results we will discuss today. Forward looking statements that we make on this call are based on assumptions only as of the date discussed. Investors should not assume that these statements will remain operative at a later time, we undertake no obligation to update any such forward looking statements discussed in this call. Also, unless otherwise stated, all financial measures discussed on this call other than revenue will be on a non-GAAP basis. A discussion of why we use non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most comparable GAAP measures is included in our press release. Which is available on the Investor Relations section of our website and in our Form 8-Ks filed today with the SEC. We have also published additional materials related to today's results on our Investor Relations site. Let me now turn the call over to Matthew.

Matthew Flake: Thanks, Josh. Good afternoon, everyone. Thank you for joining us today. Before I turn to the quarter, I want to share an exciting leadership announcement we made this afternoon. We have appointed Jonathan A. Price, our chief financial officer, as co chief executive officer. Jonathan will lead alongside me, and I will continue to serve as president and chairman of the board. Jonathan will also be joining our board of directors. He has been a driving force behind our strategy and performance for nearly a decade. And this structure reflects the board's focus on long term continuity as we continue to scale. Jonathan will continue to serve as our chief financial officer while we conduct a search for his successor. Now turning to our performance. I will start by sharing our third quarter results and highlights from across the business. I will then hand the call over to Jonathan to discuss financial performance in more detail, and provide our updated outlook. We delivered another quarter of strong financial performance generating revenue of $225.8 million representing 12% year over year growth. We also generated adjusted EBITDA of $67.8 million or 30% of revenue. And free cash flow of $55 million These results reflect our consistent execution against our profitable growth strategy. While we continue to invest in the products and customer experience that support our long term opportunities. On the sales front, we had a solid bookings quarter led by digital banking and highlighted by 7 total tier 1 and enterprise wins. Complemented by meaningful activity in tier 2. We signed both net new and expansion deals with contributions from digital banking, risk and fraud, and relationship pricing. Credit unions were a notable part of our digital banking success. Including 2 of our most significant wins from the quarter. The first was an approximately $3 billion credit union that selected our digital banking platform. This tier 2 win was our largest deal of the quarter in terms of contracted recurring revenue, and a good reminder that our opportunity to win meaningful business extends well beyond the Tier 1 and enterprise segments. The second was an approximately $10 billion credit union that selected Q2's commercial digital banking platform as it builds a commercial banking business within the credit union. Serving everything from small businesses to large commercial clients. In a competitive evaluation, they chose Q2 because they wanted a true commercial platform. Not an extension of a retail tool. And capabilities like treasury fulfillment, direct ERP integration, and instant payments gave them confidence that we can enable their ambitions. Their in house development team was also drawn to the openness of our platform. Including our SDK and innovation studio. Our wins this quarter underscore how important credit unions remain to our business. We are committed to helping them compete and grow. Our digital banking experience across retail, small business, and commercial delivered on a single platform with an expanding set of AI and developer tools allows us to support credit unions as their needs become more complex. Our existing customer relationships also continue to create meaningful expansion opportunities across the portfolio. For example, a bank with more than $60 billion in assets that already uses our digital banking platform, added multiple risk and fraud capabilities during the quarter. While much of that expansion was for our SentriX product line, it also included our AI driven account takeover solution. User activity monitoring, which continued to see strong demand in the quarter. Whether customers are adding new capabilities or growing through acquisition, the breadth of our portfolio gives us more ways to support them over time. that is 1 of the reasons we continue to view our existing customer base as an important source of long term growth. Beyond our sales performance, recently hosted our third annual Dev Days, bringing together hundreds of attendees from customers, partners, and developers who build on the Q2 platform. As a reminder, our annual client conference connect is where we showcase production ready capabilities and customer success stories. Dev Days is where we work with our developer community to explore the next frontier of the platform. it is an important opportunity to understand our customers' challenges, and help shape the next wave of innovation together. And AI was again at the center of this year's discussions. Our AI work remains focused on 3 practical priorities. Helping protect the institution, helping bankers operate more efficiently, and helping customers and partners build faster. While we covered all 3 at Dev Days, our new product previews focused on expanded capabilities for Q2 code and Q2 assistant in 2 key areas. The first is helping customers and partners move from concept to execution faster. Within the Q2 platform. For many financial institutions, the challenge is not a shortage of good ideas. it is having the resources to turn those ideas into something their account holders can use. And writing code is only 1 part of that process. At Dev Days, we shared our vision for expanding Q2 code beyond simple code generation and into all aspects of the software development life cycle. From planning and testing to deployment. The goal is to reduce routine development and operational work while building in Q2's platform knowledge and best practices. The outcome is that small teams can spend more time building the experiences that differentiate their institutions and less time on the work required to get those experiences into production. The second area we covered is evolving from simple information retrieval to helping complete work for FI employees. Today, resolving a customer service request can require an FI employee to move between systems, look up information, and work through a series of manual steps. At Dev Days, we shared new capabilities we are building for Q2 assistant that will help employees complete multistep customer service and back-office tasks. Our goal is to bring more of that work together. With AI helping employees resolve issues more efficiently, and spend more time serving their account holders. These 2 examples demonstrate why we believe Q2 has such a central role in driving AI innovation for our customers. These tools are built on our architecture and data, inside the workflows where both account holders and FI employees to make banking happen. And while some of this work is still early, the customer outcomes we are pursuing are straightforward. Faster development, less manual work, and a better experience for bankers and the people they serve. In addition to these new concepts, we continue to make progress with the AI offerings we have already introduced. Including Q2 code, Q2 assistant, and user activity monitor. During the quarter, we continue to sign customers into our early adopter programs, and we remain on pace to begin making these offerings generally available over the next 90 days. For user activity monitoring, we signed nearly 20 financial institutions into our early adopter program. Roughly twice what we expected. The feedback from Dev Days combined with the engagement we are seeing from customers and partners in the early adopter phase of these 3 offerings reinforces our confidence in the role Q2 can play as our customers navigate their AI journeys. Platform connects the data, systems, and workflows our customers rely on every day. That gives us banking specific context, an established way to deliver new capabilities and long term customer relationships built on trust. Our developer and partner ecosystem extends that opportunity. Helping customers benefit from innovation both within Q2 and across the broader market. That combination is why we continue to believe AI innovation and financial services will flow through Q2 and not around us. Overall, we are pleased with our third quarter performance and the progress we are making across the business. We had another solid bookings performance. We continue to see strong demand for and engagement with our AI and developer solutions. And looking ahead, our pipeline remains strong through the remainder of the year and into 2027. Our results and outlook give us confidence in our ability to continue executing against our long term financial framework. And as we execute against it, I could not ask for a better partner than Jonathan. He and I have built a tremendous partnership over the years, and I am thrilled to now lead Q2 alongside him as co CEO. With that, I will hand the call over to Jonathan to walk through our financial performance in more detail and discuss our increased full-year 2026 guidance.

Jonathan A. Price: Thanks, Matthew. I am honored to step into the role of co CEO and share Matthew's excitement in continuing to build a great company for our employees, customers, and shareholders. I am also pleased to take you through another strong quarter for the company with third quarter results above the high end of our guidance on both revenue and adjusted EBITDA. We also delivered record results across gross margin and adjusted EBITDA. Including our first quarter with adjusted EBITDA margin of 30%, and we continue to repurchase shares while operating debt free. Let me start by discussing our financial results in more detail, and I will finish with our updated fourth quarter and full-year 2026 guidance. Total revenue for the third quarter was $225.8 million an increase of 12% year over year and 3% sequentially. Our revenue growth was driven by subscription based revenues, which grew 14% year-over-year and 3% sequentially, and ended the quarter at 83% of total revenue. The year over year and sequential revenue growth was primarily driven by a combination of new customer go lives and expansion with existing customers. Total nonsubscription revenues grew approximately 3% year-over-year, with the increase largely attributable to the timing of professional services revenue. Consistent with prior expectations, we continue to expect pressure in our more discretionary services revenue. Total annualized recurring revenue, or Total ARR, grew to $989 million. Up 11% year over year. from $888 million at the end of the third quarter of 25 and up 2% sequentially from $971 million at the end of the second quarter. Our subscription ARR grew to $846 million up 13.5% from $745 million in the prior year period. Year over year subscription ARR growth was largely driven by bookings from new customer wins as well as expansion with existing customers. Our total ARR growth remains below subscription ARR growth by the trends we have previously discussed related to non subscription based revenue. Our ending backlog of $2.8 billion increased by $5 million sequentially, and increased $248 million year-over-year from $2.5 billion representing 10% growth. The year over year increase was driven by bookings success across new, expansion and renewal activity. Non GAAP gross margin was 62.6% for the third quarter, up 470 basis points from 57.9% in the prior year period. And up approximately 30 basis points from 62.3% in the prior quarter. The year over year improvement continues to reflect the benefits of our cloud migration. The year over year and sequential improvement was also driven by the continued shift in our revenue mix towards higher margin subscription revenue. Total non-GAAP operating expenses for the third quarter were $81.7 million or 36.2% of revenue, compared to $76.1 million or 37.7% of revenue in the third quarter of 25 and $81.7 million or 37.2% of revenue in the prior quarter. The year over year increase in operating expenses was driven primarily by higher R&D costs to support our continued product and AI investment. Sequentially, total operating expenses were essentially flat as lower sales and marketing costs following our annual client conference in the second quarter were offset by modestly higher R&D costs. Total adjusted EBITDA was a record $67.8 million in the third quarter, up 39% from $48.8 million in the prior year period, and up 8% from $62.8 million in the prior quarter. Adjusted EBITDA margin was 30%, expanding approximately 580 basis points from 24.2% in the prior year quarter and up approximately 140 basis points from 28.6% compared to the second quarter of 26. The year over year and sequential improvement was driven primarily by strong revenue growth and gross margin expansion. We ended the quarter with cash, cash equivalents and investments of $123 million up from $106 million at the end of the prior quarter, as free cash flow generation more than offset $39 million of share repurchases during the quarter. We generated cash flow from operations of $65 million in the quarter, up from $46 million in the prior year period, and delivered $55 million of free cash flow up 48% year-over-year and representing approximately 81% of adjusted EBITDA. We continue to expect free cash flow conversion of at least 90% for the full year. We remain debt free following the retirement of our convertible notes in June, Combined with our continued strong free cash flow generation, we believe this gives us substantial balance sheet capacity, and flexibility in how we allocate capital. Turning to capital allocation, we repurchased approximately $39 million of our stock during the third quarter and had approximately $336 million remaining under our share repurchase authorization, as of quarter end. We remain focused on maintaining a healthy balance sheet and preserving flexibility to support organic investment, inorganic opportunities as they arise, and a disciplined approach to share repurchases. Let me finish by sharing our fourth quarter and updated full-year 2026 guidance. Guidance. We forecast fourth quarter revenue in the range of $226 million to $230 million and we are raising our full year 2026 revenue to the range of $888 million to $892 million representing year over year growth of approximately 12%. We continue to expect full year 2020 subscription revenue growth of approximately 14.5%, up from the at least 14% we expected in our initial full-year 2026 guidance. Also expect non subscription revenue to decline slightly year over year for the fourth quarter and to be roughly flat for the full year. We forecast fourth quarter adjusted EBITDA in the range of $62.4 million to $65.4 million and we are raising full year 2026 adjusted EBITDA to the range of $253 million to $256 million representing approximately 28.6% of revenue at the midpoint. This represents approximately 500 basis points of adjusted EBITDA margin expansion for the full year, roughly double the approximately 250 basis points implied by our initial full-year 2026 guidance. Looking ahead to 2027, are reiterating our full year subscription revenue growth outlook of 12.5% to 13% and adjusted EBITDA margin expansion of 150 to 200 basis points. We measure our Rule of 40 performance as subscription revenue growth plus adjusted EBITDA margin. On a full year basis, we have expanded adjusted EBITDA margin by more than 20 percentage points since 2022, while consistently delivering strong subscription revenue growth. And we expect to finish 2026 at approximately a Rule of 43, well above 40, with our 2027 outlook also implying that we will meet or exceed that level next year. In summary, we delivered another strong quarter with record gross margin and adjusted EBITDA, and both revenue and adjusted EBITDA finishing above the high end of our guidance. This performance, coupled with our outlook for the remainder of the year, has given us the confidence to raise our full year guidance on both revenue and adjusted EBITDA for 2026. We remain dedicated to delivering growth profitability expansion, and improved capital efficiency and believe that our results to date collectively illustrate our progress and potential as we continue to evolve our business and drive shareholder value. With that, I will turn the call back over to Matthew for his closing remarks.

Matthew Flake: Thanks, Jonathan. Before we open it up for questions, I will close with a few final thoughts. We delivered another strong quarter of financial results alongside solid bookings performance led by digital banking, our credit union wins and continued expansion activity demonstrate the breadth of the opportunity we have with both new and existing customers. We are also continuing to advance our AI strategy close partnership with our customers. The engagement at Dev Days and progress with our early adopters reinforce our belief that Q2's and ecosystem will become even more valuable as our customers put AI to work. Looking ahead, I believe we are well positioned to capitalize on continued demand support our customers as they grow organically and through M&A, and finish the year strong. We remain focused on executing against our long term framework and delivering durable growth and continued improvement in profitability. Thank you to our employees, customers and partners for their continued commitment to Q2. With that, I will turn the call over to the operator for questions.

Operator: We will now begin the Q&A session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 9 to raise your hand. And 6 to unmute. And your first question comes from the line of Alexander Sklar with Raymond James. Your line is open. Please go ahead.

Alex Sklar: Great. Thank you. Can you all hear me?

Matthew Flake: We gotcha.

Alex Sklar: Okay. Alright, Matthew. Maybe first 1 for you. Just on the rise of the personal agents, particularly the. Over the last couple months, and I really appreciate Josh, Adam, and Hema putting out that webinar this week. what is been the response from your FI clients and prospects in terms of demand for your various solutions? And are you seeing it kind of unlock any new pockets of opportunity, particularly upmarket with tier 1 and enterprise customers where they may have previously elected to do more in house?

Matthew Flake: Yeah. I think at Dev Days, we really. We are able to show off Q2 code and the ideas, the ability to build quickly iterate, and roll new ideas and put them in production quickly was what was really impressive. And that video that Hema and Adam put out is really compelling when they talk about it. But the thing that is been interesting is whether it is UAM or Assistant, is when you begin working in. Or code, when you begin working with the customers, ideas start to flow. And human in the loop ideas, they begin to figure out we can add this. Or we, you know, we can keep this element of it. So the flexibility and the ability to get, you know, product into production quickly has been a game changer for us and we are. As far as agents go, we are building our platform and solution for all to explore agents however they want to do it. And that flexibility, it is up to them. Some people are gonna allow agents to transact or have certain limitations on it, but in some have taken a position that they are not. So we are neutral on it. We are trying to, stay as flexible as we can so our customers have optionality. But the engagement continues to increase around AI every quarter.

Alex Sklar: Okay. Great. And, Jonathan, congratulations on the co CEO appointment. I will ask you a CFO question maybe for the last quarter here. But really strong profitability. I think this. The incremental EBITDA margins were the highest in 3-ish years. Can you talk about how much of this was timing related on planned spend and how that is flowing through the Q4 guide versus any structural efficiency gains you are realizing?

Jonathan A. Price: Thanks. Yeah. Thank you, Alexander. Appreciate it. So, yeah, really, really pleased with the third quarter and year to date profitability performance There is a little bit we have talked a lot about increasing the ramp of our investment as we head into 2027, and you sort of see that when you look at the sequential for Q4 of this year, it comes to the EBITDA margin. A lot of that spend came online late in Q3 and then starting full in Q4. So you do see a little bit of outperformance in Q3 relative to Q4 in that regard. But more broadly, I mean, I think you are seeing the continued mix shift of the business towards subscription. Seeing us stay disciplined and execute on a whole bunch of efficiencies in the organization, including with AI. And so I think we are we are really pleased to see the degree to which that flowed through in the third quarter. But as you get into Q4 and 2027, as we have talked about the last couple calls, we are continuing to invest heavily in the product road map and the priority areas that we have talked about. Whether it be commercial, at large, innovation studio, our fraud related products, AI, etcetera. And so we still stick by the guide for 2027 and beyond when it comes to the ramp of incremental profitability. And if we can do better than that, great. But we want to make sure that we are investing, appropriately to drive this durable long term growth profile that Matthew talked about.

Alex Sklar: Great. Thank you both.

Matthew Flake: Thanks, Alexander.

Operator: And your next question comes from the line of Terry Tillman with Truist. Your line is open. Please go ahead. Hey, Terry. Reminder that you may need to press star 6 unmute. I think you just muted, Terry. There you go. Okay. We can move on to the next question. Our next question comes from the line of Michael Infante with Morgan Stanley. Your line is open. Please go ahead.

Michael Infante: Yeah. Hey, guys.

Matthew Flake: Hey, Mike. Hey, Mike.

Michael Infante: I wanted to ask on just AI related unit economics. I am curious what you are seeing underneath the hood in terms of the mix of customer inquiries that actually might require you know, third party inference versus those that can be resolved internally without going out to actually have to source the incremental compute? Like, do you expect to sort of monetize both at the same rate, and what are you actually seeing in terms of you know, the flows between sort of human in the loop versus more agentic?

Jonathan A. Price: And, Michael, I just want. I want to make sure I understand your question. When we think about if you are talking about products that we are distributing to our clients, and how we monetize those versus the underlying compute costs that are either inherent in those products or that we use to build our products. I just wanna make sure I am answering the right question.

Michael Infante: Yeah. I guess the question is just as you sort of think about the gross margin dynamics, you know, associated with more, like, agent driven workflows versus those that were a little bit more human in the loop intervention, like, how are you sort of seeing that evolve, and what are you seeing internally on both of those fronts?

Jonathan A. Price: Yeah. I mean, I think as we are in the early adopter phase on these new products and we look at sort of the total cost structure of these new solutions along with sort of pricing models that we are testing. The early phase, looks good in terms of the margin opportunity. You know, we are doing what we need to do to protect ourselves. Vis a vis caps on tokens and ensuring that usage does not put us upside down. But we are also having sort of a base economic subscription fee along with upside that is driven by you know, in the case of, let's say, the fraud products, the number of businesses or consumers that we are protecting or in the case of Q2 Assistant, the number of. Or the use cases that we are solving for. So we are getting in that regard, a gross margin outcome that we are pleased with in the EA phase. But we just have not seen it yet at scale. And whether it is sort of some of the stuff in the background on the infrastructure side or the compute, We are confident that this is going to look positive, but we just do not know enough yet to say it with certainty at scale in GA.

Michael Infante: Got it. that is helpful. And then maybe just for my quick follow-up, just on you know, the framework in terms of the Q3 sub and any way our results Q3 relative to you know, the reiteration of the 2027 framework, like, if I just assume typical seasonal step up in subs net, no ARR in the fourth quarter of call it, 5 to $7 million or something along those lines, mid- to high 20s, I think that gets me closer to 12% growth at least on the ARR metric. Like, can you just sort of frame confidence levels in terms of the 12.5% to 13% level and sort of how you are thinking about you know, things like backlog conversion, either incremental acceleration on subs net new ARR or, you know, some of the incremental cross sell initiatives that you guys have in place? Thank you.

Jonathan A. Price: Yeah. Thanks, Michael. Yeah. We feel we feel really good about the Q4 opportunity we have for the step up that you talked about and potentially even more. Obviously, we have got to go the bookings in Q4 and the renewals, etcetera. But I think we are well set up to do that. And in terms of the degree of confidence we have in reiterating the 2027 guide, well, we can talk about it. It obviously depends somewhat on the Q4. We feel really, really good about that 12.5 to 13, and you know, we have we have had that as our 2027 early look since the beginning of the year. And as we sit here in late October, we feel incrementally more confident in that 12.5 to 13 because you gotta remember that the subs ARR, execute that we had in the third quarter at 13.5% year-over-year growth, as well as Q1, and 14%, all help contribute to sort of the overall picture in 2027 subs growth. So feel really good about that. Obviously, we talked about it coming into Q3 and Q4 of the second half. has some tougher comps relative to the back half of last year. On both subs ARR and renewal. And renewals. But very pleased that we were at a healthy number here in the third quarter, like you mentioned, of almost 21 million of subs ARR in Q3. And feel really good about the opportunity we have in Q4 that will only reaffirm that forward growth rate even more.

Michael Infante: Thanks, Jonathan, and congratulations.

Jonathan A. Price: Thank you, Michael.

Operator: And your next question comes from the line of Ellis Smith with JPMorgan. Your line is open. Please go ahead.

Eleanor Smith: Good evening. Thank you for taking my questions and congratulations again, Jonathan.

Jonathan A. Price: Thanks, Ella.

Eleanor Smith: Maybe for Matthew first. In April, you said that 30% to 35% of digital banking customers use your fraud products. I am curious where that is today and where do you think it can go longer term given that was growing above the company average?

Matthew Flake: I think it is about the same when you take the new customers we have added as well. And I think that number could probably shoot to 60% to 70% over the next 2 to 3 years. that is taking a swag at it. But there is. With UAM and you know, we continue to build more products as well around We are we are seeing the UAM product expand even beyond with rights access and other things that we are adding to it. So I think we will continue building products but the adoption of the product should continue I feel like we should be able to get to 60% to 70% in the next couple of years.

Eleanor Smith: Makes a lot of sense. Thank you. And for Jonathan, your debt free with over $300 million of share repurchase capacity. What would catalyze you to pick up the pace of share repurchases would you ever consider using leverage to speed up the buybacks or stay funded from free cash flow?

Jonathan A. Price: Yeah. it is a good question, Elo. I mean, we want to be flexible on making sure we are allocating capital for what we believe will be the best return for shareholders. So you can see in the third quarter, we did about $39 million of share repurchases. A little lighter in the second quarter, but obviously there we were timing up against the maturity wall of the converts. So we are just staying disciplined. But we are we are open to obviously deploying and using it, and we have the cash balance and the building of free cash flow to use. We just want to stay nimble with regards to, obviously, the share price performance, can dictate how much we buy and when, but also making sure that we are in a position to exercise other capital allocation levers like investing back in the business, which you are seeing some of that in the 2027 and beyond EBITDA guide where the margins are expanding, you know, less than what we have put up over the last 4 years. So some of that is baked into that, but then also, building the balance sheet for future potential M&A is always a potential use of proceeds. But obviously, lot has to go right for us to go down that path. So I think what we are really valuing now is just flexibility And in the meantime, we execute at a high level, and we can build the cash balance up. And then we have all the options at our disposal. And as far as leverage, I think of that as something we have created capacity to do. But there would, again, have to be a compelling reason why we would need to lever up to do more because, again, between the cash we have and the cash we are generating, we think we could theoretically utilize that entire program over the next call it, 12 to 24 months. it is just a question of timing that up with what makes sense from a from a valuation perspective and then the other options we have, as I mentioned.

Eleanor Smith: Makes a lot of sense. Thanks so much.

Jonathan A. Price: Thanks, Ella.

Operator: Your next question comes from Andrew Schmidt with KeyBanc. Your line is open. Please go ahead.

Andrew Schmidt: Hey, Matthew. Hey, Jonathan. For taking the questions this evening. Maybe just starting off, Jonathan, congrats on the new appointment. Maybe just for both of you, how are you going to split up the responsibilities And obviously, Jonathan, look, you have been with company for a long time. Obviously, you know, this is well deserved, but I am just curious just any sort of initial remarks as you kind of step into the role. I imagine it is business as usual, but curious if there is any particular focuses. Thanks.

Matthew Flake: Yeah. Andrew, I appreciate it, and congratulations to Jonathan. Yeah, we are co-CEOs. We are going to manage the business collectively together. Obviously, you know, I am going to continue to foster culture, focus on customer relationships, and drive strategic direction. But, Jonathan, I will share in the roles and you know, the leadership team we have is really strong. And then even a couple clicks below it, we have got a lot of-- we have got a deep bench. So I have a lot of confidence in the team. The business is performing at a high level, and we will continue to make decisions collectively. And the reporting structure will operate in a co CEO fashion. And so it will be interesting to see how it plays out, but Jonathan and I collectively agree on a lot of stuff. And I think where we disagree, we have always been able to resolve it. So it will just be a co CEO structure.

Jonathan A. Price: And, Andrew, just to your second question, you know, you sort of said it. It is business as usual. You know, Matthew and I and the rest of the executive team we have sort of crafted our corporate strategy and our go forward plans that are all multiyear in the making. Multiyear in the making. And, you know, we sit here today on a plan that we crafted together and that we still have a ton of conviction. And so obviously, I am humbled and honored to step into this role and excited to work with Matthew in this new way. But it is heads down. it is business as usual, and we have got to keep getting back because I think we have an incredible opportunity in front of us. And this is an amazing business, but we have just got to keep capitalizing on the opportunity we have in front of us, as I mentioned. So it is just business as usual and excited for what is ahead.

Andrew Schmidt: Yeah. Appreciate that. Great remarks. Maybe just shifting gears to fraud and cyber, and you know, echo the comments on the content with Himagiri and Adam that was that was a great session. But 1 of the things we have kind of, you know, uncovered in our research and you guys touched on is the notion of fraud, cyber, even AML kind of coming together as a platform. This takes time, but it seems to be converging. Maybe just talk about just the longer term vision in this category. Are you building a broader platform? And then I think you have talked about the right to win as being sort of the having those user interactions at touch points as well. Maybe just talk about your right to win versus perhaps other specialist providers or infrastructure players. In that market. I know it is a big market. it is kind of hard to, you know, to uncover, but any comments there in terms of the evolution of the platform would be helpful. Thanks.

Jonathan A. Price: Yeah. I would just say, you know, we sit in a pretty special position with regards to the data we sit on top of and sort of the ability to protect the digital session from multiple angles. And when we think about this future of what we are calling the fraud intelligence platform, there is a pretty clear view that we have that with our data, with our signals, and with our ability to continue building new products like UAM that we have talked about, we can have a differentiated ability to protect the financial institution and that ultimately is what it comes down to. And so we are investing heavily in this space. We think it is a very significant pain point for our customers. And when you think about everything it takes to protect the institution, it is not really. it is not just about the software that we write and how we deploy it. it is also how we operationalize it. And work with these financial institutions to solve a pretty big problem on their behalf and alongside them. So we are we are we are really investing heavily in this space. We are trying to continue to work, and we think of all the different ways we can do it, whether we are building new products, We have some great partners in this space. And it is just something we are we are very committed to and excited about. And, I think you are right that being the digital banking platform, we are in a privileged position when it comes to our relationship with these FIs, the data we have to ultimately be able to help them solve this problem. I do not know if there is anything else.

Matthew Flake: No. Makes sense.

Jonathan A. Price: Thank you, Jonathan. Appreciate it.

Operator: Your next question comes from Bill Carcache with Piper Sandler. Your line is open. Please go ahead.

Bill: Thank you. Can you hear me?

Matthew Flake: Yeah, we got you, Bill.

Bill: Great. Hey. Matthew and Jonathan. Thank you so much for your thoughts today and appreciate you taking my question. And let me extend my congratulations, Jonathan, The fundamental performance has been exceptional. But I wanted to take the opportunity to ask you if you could speak directly to the broad topic of AI related terminal value concerns that have been at the heart of the bull bear debate in our discussions. As investors continue to debate whether increasingly capable AI models could erode the long term value of digital banking platforms. I was hoping you could just discuss some of the dynamics the market may be overlooking beyond your regulatory expertise? How do variables like core integration, security, auditability, implementation, accountability for mission critical workflows, those sorts of things protect Q2's role with banks? And maybe just what gives you confidence that these capabilities will remain difficult to replicate even as AI advances?

Jonathan A. Price: Yeah, Bill, you gave part of the answer there really well because I think you hit. It goes way beyond just building the software, writing the code. And when you think about some of the elements you mentioned, we, you know, we spent the last 20 plus years building all those things. And whether it is the security apparatus around the system, everything around the adapters and the integrations, there is so much operational investment that goes into this that goes way beyond the. Code development, code writing. And so I think that is sort of at the heart of the arguments. And when you look at the conversations we are having with customers starting, a year plus ago all the way up through. We had our client advisory board this week. You know, it is pretty clear they are leaning on us when it comes to their future AI journeys. And, I think 1 of the things, that we saw even in the third quarter in our renewal data was even longer duration. So the customers are voting with their wallet. That they want to partner with us and help them solve their AI and work with them on their AI journey. So when we talk about the terminal value debates that is going on for the last 12 to 18 months, I think our customers and our prospects speak the loudest, but again, there is just it is hard to overstate how much goes on around this platform to operationalize it and serve our customers day to day that goes way beyond replicating a digital banking experience.

Bill: Thank you. that is very helpful. And then separately, I wanted to follow-up on the success that you have had with your relationship based pricing products. Which came into focus last quarter. I wanted to ask if you could give an update there. And banks have historically had a pretty siloed view of their customers across different products, whether it be CRE loans or C&I, or different deposit products. Maybe you could just go a little bit deeper into the features of that relationship based pricing tool? Does it give banks the ability to look at the customer across different loan and deposit products more holistically? So they can, make more informed decisions about whether to give that customer a bit more of a favorable rate on the profitability of the relationship? Any sort of additional details you can give there would be helpful.

Matthew Flake: Yeah, Bill, it is the thing that is driving a lot of the activity for us is the complexity of the rate environment. Right now. And pricing alone when it was at zero, was not that complicated. But when you have deposit rates up, loan rates up, and you have got other factors you have got to build into, it could be treasury pricing, a lot of things you have to factor in. We sit on, you know, $2 trillion of loans about $2 trillion of deposits, and we can use that data to help the bank make a more informed pricing decision, which might be you price the loan a little tighter than you want to, but you get more on the deposits or you charge more for the treasury So the backdrop is the complexity of the pricing environment. And that is why you are seeing the demand environment because they need real data to make these decisions. Because it is more complex. And so I think you are gonna see that continue. And into the future,, especially with, you know, the potential for rate hikes and the complexity around that. So it is. That asset of ours, our relationship pricing tool, continues to be more and more valuable and continues to see more and more momentum behind it, and interest and engagement.

Bill: that is very helpful. Thanks again for taking my questions.

Matthew Flake: Thanks, Bill.

Operator: And your next question comes from the line of Brett Huff with Stephens. Your line is open. Please go ahead.

Brett Huff: Good evening, guys. Matthew, Jonathan, and Josh, and it is nice to be speaking with you again after a few years off. Congrats on a nice quarter, and thanks for taking the questions. 1 question on fraud. You mentioned sort of outcome based pricing on some of the fraud products. And I am wondering that is a trend that we are seeing kind of across software How are those conversations going? Is it something specific about fraud and the sort of very, I guess, calculable nature of that makes the outcome based pricing work there, or is that something that seems customers seem open to more generally?

Jonathan A. Price: Well, I do think you are hitting on a point around. On the fraud product that the value proposition there is very clear to the financial institution. it is clearly something they are they are watching closely and measuring our ability to help them reduce the degree of it. I do wanna correct something you said around outcome based pricing. What we are really doing on the fraud side is we are we are pricing it in a way where we get paid essentially in addition to the base platform for incremental businesses and consumers that we are protecting. So you could you could call it, I guess, outcome based pricing, but, really, it is it is the customers that we are ultimately protecting against account takeover. That can drive incremental value. it is not, for example, the dollars of fraud stopped from x to y as an example. So I. We do not call it outcome based pricing in that regard, but it is certainly. Their outcome that they desire is to protect the end consumer or the end business, and that is how we are we are pricing it at least for that product.

Brett Huff: Okay. Thanks. And then follow-up. On the renewal question. I think, Matthew, you hit on this a little bit. And I know that you have been feeling the love on maybe early renewals, better expansions. Have those conversations evolved any as probably banks are looking more and more for a longer term partner to kind of get in bed with for the fulsome digital and AI transformation? Is anything materially different happening or positive or negative?

Jonathan A. Price: Yeah. I mean, I guess I sort of alluded to earlier. 1 thing I would say that whether you look in Q3 here of 26 or even earlier, it is worth noting that when you look at the economics of these renewals, so think about things like price increases, the amount of cross sale that goes into a renewal, what we call at annual increases or effectively our inflation index. And maybe more important is even then all of that when it comes to backlog math is duration of these contracts. All of those things are performing really, really well, and Q3 was strongest on those dimensions so far this year and even stronger than the really strong renewal quarters we had in the back half of 2025. So, I think we are in a good position when it comes to the underlying health of the renewals. And like you said, we are working with our customers trying to paint the journey of what we can help them on the AI front, on the fraud front, obviously, on the digital banking side. And we are trying to lock them in and grow those relationships. So, it is going really well, and we are excited because there is there is a lot more opportunity ahead of us on that front as we move into 2027.

Brett Huff: Great. Thanks so much for the time. Appreciate it.

Matthew Flake: Thank you, Brett. Welcome back.

Jonathan A. Price: Thanks.

Operator: And your next question comes from the line of Terry Tillman with Truist. Your line is open. Please go ahead.

Analyst: Hey, can you guys hear me?

Matthew Flake: We can now, Terry.

Jonathan A. Price: We can. Yeah. Sorry. This is Luke Ruddy on for Terry. Apologies about the technical difficulties. But first off, congratulations to Jonathan on the new role. Thank you.

Analyst: And I guess to start off, how is the cross selling relationship between relationship pricing and digital banking. And do you kind of still see it as a 1-way street where relationship pricing is only being really sold into commercial customers? Or are you starting to see relationship pricing customers at commercial banking And I guess in your view, what needs to occur to kind of upstart this cross sell?

Matthew Flake: Yeah. I would say it is it is more selling relationship pricing into existing commercial customers. And, yeah, you just have a bigger footprint with digital banking and a bigger relationship in the financial institutions that it runs in, But we are building. You know, remember, we have 9 of the 15 biggest banks in North America that use the relationship pricing tool. So some of those are not necessarily a great fit for our digital banking. But some of them we are expanding the relationships, having bigger conversations. Some of them have actually, I think we have sold fraud into some of the relationship pricing customers to some standalone fraud products. So important thing is that we are engaging with our customers, finding out where they are challenges and the opportunities are, what problems we can solve for them. I do not really have a time frame on when we would do more of that, but I think it is important to know that we are engaging with the customers and trying to figure out what solutions we can plug in and what problems we can solve for. That makes sense, and it is great to hear.

Analyst: And I guess as a quick follow-up, great to hear about the traction with UAM, signing roughly 20 customers. Anything you could share on the revenue ramp and timing of these customers with UAM or maybe just the broader AI products? Or is that still too early?

Jonathan A. Price: it is pretty early. I mean, we will share, you know, those customers. They are all alive and in production now in the context of the early adopter phase. But the reason it is too early to talk too much about the revenue ramp and the trajectory there is we obviously are not in GA yet, and you know, we need to see how pricing and scale and the timing of selling the deals in GA. Will shake out. And so you know, part of an early adopter is more favorable pricing and also experimentation on pricing. So until we are in GA as we get into the new year, and. Well, in the case of UAM, it should be by. Before then at late this year, We just need to see that to be able to comment on the revenue opportunity. To be clear, that is not factored into the guidance that would be early look of reiterating the 2027 outlook. So you know, the. If GA proves positive and we see good traction that could provide upside to that. But that is not-- it is just. there is just not enough there for us to comment on yet.

Analyst: Awesome. Thank you, and, nice quarter.

Matthew Flake: Thanks, Luke. Thank you.

Operator: And your next question comes from Matthew Van Vliet with Cantor Fitzgerald. Your line is open. Please go ahead.

Matthew VanVliet: Hey. Good afternoon. Thanks for taking my questions, and congrats, Jonathan, very much deserved.

Jonathan A. Price: Thank you, Matthew.

Matthew VanVliet: First, on the success that you called out this quarter on the credit union side. if you can just, you know, peel that back a little bit. Anything changing in the underlying trends in the credit union market, or is this more of a factor of you know, internal changes and investments made around covering that market? What, if anything, do you attribute some of that strength to?

Matthew Flake: I think it is largely the $3 billion credit union that we highlighted credit unions are getting more and more into business banking, and they see the opportunity there. And a single platform provides them with the ability to take a member who is on the credit union system who may be running a small business and offer them on demand ACH wire, entitlement, whatever type of commercial functionality where they have to get a new login ID and they do not have to set up a new system and have 2 different logins to look at their information. And that is what our platform provides. So our experience with cash management, we have advisory services where people can go out and help them and figure out. And teach them how to sell the products. The whole suite that we have is what is really driving a lot of the engagement there. We have been in credit unions since 2008 or 2009. So. And half of our 28 million users are credit union members. So 50% of the top 100 credit unions we have always been we have always been a credit union provider. And so I think it is just it started to show up, and I would say the sales team's doing a good job, and the marketing team is going to continue to drive that message to the credit unions about how our product can help expand from non secured consumer auto lending home equity to where they get into a broader set of products to help them kind of survive this tough economy for consumers.

Matthew VanVliet: Very helpful. And then as you look at the Helix business, it would seem like a lot of the. All FIs or maybe in some cases, just the nontraditional, customers that you are reaching there are maybe struggling with the higher rate environment, but I guess, how is the business of Helix been progressing lately, if you delineate between traditional banks launching, maybe new product lines or new ways to attract customers versus those nontraditional and the overall health of that market?

Jonathan A. Price: Yeah. I mean, there has not been a lot of change so far in the second half of 26. What I would say is, you know, the. We did a good job in the 2020, 2019, 2018 through 2023 when, you know, or late 22 when rates started rising into 2023 when the bank failures happened and. Before the BaaS space really changed fundamentally. In adding a bunch of very, I will call them marquee and high volume customers. Those folks have really oriented themselves around their programs and being profitable active engagement with their customers as opposed to spending money to grow really fast. And so those customers for us we have done a good job renewing them, and they are healthy, and they are growing. But they are not investing and growing like they were, you know, 3 to 4 years ago. And then when it comes to net new on the traditional or the nontraditional side, the fintech side, for example, that therefore-- since 2023, the backdrop has been pretty slow. And so as we have shifted more of the messaging and the value prop and the team towards traditional financial institutions and the opportunity there, that is where we are having some exciting conversations and intrigued about the especially on the retail banking side with the Helix Core and our digital banking platform, but it is still it is still early, and we have not seen enough traction there yet to be able to sort of tell a story of meaningful progress to report on.

Matthew VanVliet: Alright. Helpful. Thank you, Matthew. Thanks, Matthew.

Operator: And your next question comes from Parker Lane with Stifel. Your line is open. Please go ahead.

Parker Lane: Good afternoon. Thanks for taking the question. Jonathan, when you look at the framework for 2027, the 12.5% to 13% growth and look at the pipeline you have in place. You expect any deviation from this year's growth drivers? Do you expect bigger contributions from risk and fraud and relationship pricing relative to core? And just to clarify, it does not sound like there is any meaningful AI in there. Is that correct?

Jonathan A. Price: The latter part is correct. Yes. And the former we do expect a little bit more continued mix shift and contribution and more rapid growth candidly from example, the fraud side of the business. But, you know, still feel really good about the pipeline on digital banking across retail and commercial and banks and credit unions. So very optimistic about Q4 into Q1 and Q2. But as far as we can see, right now. And then, also, Matthew already talked about on the relationship pricing side, feel like we got some good opportunities we have got to go execute on and sign before the end of the year and the pipeline into 2027 also has some meaningful deals. So it is pretty broad based and we have just got to go execute them.

Parker Lane: Got it. Just to follow-up on an earlier question about the price discovery around AI functionality. What are you learning from those conversations you are having with customers in the early access program? Is there going to be a single or consolidated pricing offering? Do you expect more bespoke pricing based on customer needs? what is the current ideation around that?

Jonathan A. Price: Yeah. it is a great question. it is very topical. I mean, I think we are learning sort of what you just said is that it is not going to be uniform across products and even potentially across you know, customer types. So it varies by product, but what we are seeing is all cases, that some form of hybrid model is what seems to be, resonating with the customers in terms of having some base platform fee that protects us and them against usage and, well, I will say, over usage. But then some variable lever around value that, like we talked about on the fraud side, whether it is the number of businesses or consumers we are protecting or in the case of assistance, the number of use cases that we are using to drive value on. So it really is a hybrid model, and we are really looking forward to seeing how this scales and once it is generally available because, the feedback has been very positive. And, you know, we have I think we have chosen 3 lanes for AI in protect the institution, build, create builders, and drive efficiency for the bank and the back office. Where these are areas where they are willing. The FIs are willing to start experimenting, We are seeing more and more adoption every quarter. And so we have we have sort of mapped our product road map to those 3 lanes, and it seems to be resonating. And pricing has not been a major hurdle for us so far. So we feel optimistic that can show well as we get into 2027 from a bookings perspective and then 2028 and beyond when it comes to the revenue. The real revenue opportunity.

Parker Lane: Got it. Thanks, guys. Parker. Thanks, Parker.

Operator: And your next question comes from Joseph Vruwink with Robert W. Baird. Your line is open. Please go ahead.

Joseph Vruwink: Hey. Thanks. Can you hear me okay?

Matthew Flake: Got you, Joseph.

Joseph Vruwink: Okay. Great. In the past, when you have tried defining your risk and fraud areas, I think that was quantified as a $4 billion TAM. I am wondering if you think that is still the right number. You know, 1 thing that stood out from Adam and Hema's talk this week was just talking about how the personal agents in the bank setting creates a lot more surface area that now needs to be tracked and monitored. It would seem like that expanded scope should translate into economics and what broad intelligence can garner.

Jonathan A. Price: Yeah. it is it is a great point. I mean, the reality is we ran this analysis annually and coming into the year, you know, we would admit that the $4 billion is maybe a little conservative. And certainly, as you listen to Adam and Hema on the podcast, it is clear that these use cases are evolving. The surface area is growing, and that is leading to more opportunity. it is it is hard to quantify the monetization of that yet and what that would incrementally add to the TAM. We certainly feel like it is a very large TAM and 1 that we are just sort of scratching the surface of the opportunity on. that is great.

Joseph Vruwink: that is great. And by the way, Jonathan, and thanks, Jonathan. Maybe just on the sequential development in RPO, I know we have been talking about how when you look at the renewals that transacted, good developments? Were the number of renewal events a bit lighter in the Q3 period and does that maybe step up in Q4, which is naturally gonna be good for sequential RPO development? I think if I go back to, like, the fourth quarter of 23, obviously, a great new bookings quarter, but were there also renewals happening then, which kind of are gonna come back around now, here at year-end?

Jonathan A. Price: Yeah. The 2023 cohorts would not be coming back around yet. So you gotta remember most of these deals are 5-plus years in duration, and often, they are renewed early and can have incremental term on top of what is left. So that would not be the cohort that is coming around yet, but you are right that there is seasonally a step up in Q4, and we certainly feel good about the step up opportunity we have And, yeah, Q3 is typically a lighter quarter, and that although Q3 of last year was not, and so that created a tougher comp for us. But I think most important, we do not we do not manage the business on a quarterly backlog basis. And so what we look to every quarter in every year is the underlying fundamentals I talked about earlier. Is the health of those renewals and, a, that we are not churning them, and, b, that the economics and the duration are holding strong, and all of those are strong, if not stronger, than earlier in the year and late last year. So you know, for us, you know, feel good about Q4 when it comes to the number of and the dollars available. But, obviously, we gotta just execute on those and continue to see the fundamentals hold strong because that, I would argue, matters more in the long run. Than any 1 quarter and what is available to be renewed within a given quarter.

Joseph Vruwink: Great. Thank you.

Jonathan A. Price: Thanks, Joseph.

Matthew Flake: Thanks, Joseph.

Operator: And your next question comes from the line of Chris Kennedy with William Blair. Your line is open. Please go ahead.

Cristopher Kennedy: Great. Good afternoon. Thanks for taking the question. Can you provide any update on Innovation Studio and talk about how AI can impact the opportunity with that asset. Thank you, guys.

Jonathan A. Price: Yeah. Innovation Studio is having a phenomenal year. Through 9 months, whether you look at bookings, revenue, adoption, we are seeing really good uptake on a, obviously, a broad range of products now that are over 200 and counting in terms of the number of partner products. In terms of AI, I think you are you are seeing almost everyone in innovation Studio, and about whether it is new SKUs or upping the value proposition of existing SKUs leveraging the AI tools that are out there. I think that is becoming par for the course. And so I think that is that is a nice halo effect on our business because we participate in all of that technology as we distribute it to our customers and the associated economics. But, yeah, AI is touching everything, and we are we are grateful that our partners are leaning in and adding new partners that, you know, are maybe more AI first and coming from a different angle than some of the incumbents. So really pleased with where we are at with innovation Studio, and looking forward to a strong fourth quarter and beyond.

Cristopher Kennedy: Thanks for taking the question.

Jonathan A. Price: Thank you.

Matthew Flake: Thanks, Christopher.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.