Q2 Q3 Earnings Call Highlights

Key Points

• Q2 exceeded third-quarter guidance, reporting revenue of $225.8 million, up 12% year over year, while adjusted EBITDA rose 39% to a record $67.8 million. Free cash flow increased 48% to $55 million, supported by stronger margins and subscription growth.
• The company raised its full-year 2026 outlook to $888 million-$892 million in revenue and $253 million-$256 million in adjusted EBITDA, implying approximately 28.6% adjusted EBITDA margin at the midpoint.
• Q2 appointed CFO Jonathan Price as co-CEO alongside Matt Flake and is expanding its AI offerings, including Q2 Code, Q2 Assistant and User Activity Monitoring. Management also highlighted significant growth potential for fraud products among existing digital banking customers.

Q2 NYSE: QTWO reported third-quarter 2026 results above the high end of its guidance and raised its full-year revenue and adjusted EBITDA outlook, as subscription revenue growth, margin expansion and free cash flow supported its profitable-growth strategy.

The company also announced that Chief Financial Officer Jonathan Price has been appointed co-chief executive officer alongside Matt Flake. Flake will remain president and chairman of the board, while Price will continue as CFO during a search for his successor and will join Q2’s board.

“This structure reflects the Board’s focus on long-term continuity as we continue to scale,” Flake said. He added that Price had been “a driving force behind our strategy and performance for nearly a decade.”

Third-quarter financial results

Q2 generated third-quarter revenue of $225.8 million, up 12% year over year and 3% sequentially. Subscription-based revenue increased 14% year over year and represented 83% of total revenue at quarter-end. The company said growth was driven by new customer go-lives and expansion activity among existing customers.

Total annualized recurring revenue reached $989 million, up 11% from a year earlier, while subscription ARR rose 13.5% to $846 million. Ending backlog was $2.8 billion, rising $248 million from the prior-year period and $5 million sequentially.

Non-GAAP gross margin reached a record 62.6%, improving 470 basis points from the third quarter of 2025. CFO and Co-CEO Price said the improvement reflected the benefits of cloud migration and a continued shift toward higher-margin subscription revenue.

Adjusted EBITDA also reached a record $67.8 million, up 39% year over year, with adjusted EBITDA margin reaching 30% of revenue. The company generated $65 million in operating cash flow and $55 million in free cash flow, up 48% from a year earlier.

Q2 ended the quarter with $123 million in cash equivalents and investments, compared with $106 million at the end of the preceding quarter. It repurchased approximately $39 million of stock during the quarter and had about $336 million remaining under its share repurchase authorization. The company said it remained debt-free after retiring its convertible notes in June.

Bookings, credit unions and customer expansion

Flake said Q2 posted a solid bookings quarter led by digital banking, including seven Tier 1 and enterprise wins and meaningful Tier 2 activity. The company signed both new and expansion contracts spanning digital banking, risk and fraud products, and Relationship Pricing.

Credit unions were a notable contributor. Q2 won an approximately $3 billion credit union customer for its digital banking platform, a Tier 2 contract that was the quarter’s largest deal by contracted recurring revenue. It also signed an approximately $10 billion credit union to use its commercial digital banking platform as that institution develops its commercial banking business.

Q2 also expanded its relationship with a bank with more than $60 billion in assets that already used its digital banking platform. The expansion included several risk and fraud capabilities, including Centrix offerings and the company’s AI-driven User Activity Monitoring product.

Management said the company sees a significant opportunity to increase fraud-product adoption among digital banking customers. Flake said roughly 30% to 35% of those customers currently use Q2 fraud products and estimated the figure could rise to 60% to 70% over the next two to three years.

AI products and platform development

At its Dev Days event, Q2 highlighted planned expansions of Q2 Code and Q2 Assistant. Q2 Code is intended to extend beyond code generation to support more of the software development lifecycle, including planning, testing and deployment. Q2 Assistant is being developed to help financial institution employees complete multistep customer-service and back-office tasks.

The company said it continued enrolling customers in early-adopter programs for Q2 Code, Q2 Assistant and User Activity Monitoring, and remains on pace to begin making the offerings generally available within 90 days. Nearly 20 financial institutions joined the early-adopter program for User Activity Monitoring, about twice management’s expectation.

Price said Q2 is still testing pricing and cost structures for the newer AI products. He said early-adopter economics appear favorable, with pricing approaches that include a base subscription component and variable elements tied to the value provided, such as the number of consumers or businesses protected in fraud use cases. The company has not included a meaningful AI contribution in its 2027 guidance, according to Price.

Raised 2026 outlook and 2027 framework

For the fourth quarter, Q2 forecast revenue of $226 million to $230 million and adjusted EBITDA of $62.4 million to $65.4 million. The company raised its full-year 2026 revenue outlook to $888 million to $892 million, representing approximately 12% growth.

Q2 now expects full-year subscription revenue growth of approximately 14.5%, up from its initial expectation of at least 14%. It expects non-subscription revenue to decline slightly in the fourth quarter and remain roughly flat for the full year.

The company raised its full-year adjusted EBITDA outlook to $253 million to $256 million, or about 28.6% of revenue at the midpoint. That outlook implies approximately 500 basis points of full-year margin expansion, about double the expansion contemplated in its initial 2026 guidance.

For 2027, Q2 reiterated expectations for subscription revenue growth of 12.5% to 13% and adjusted EBITDA margin expansion of 150 to 200 basis points. Management said it expects to finish 2026 at approximately a Rule of 43, measured as subscription revenue growth plus adjusted EBITDA margin.

About Q2 (NYSE:QTWO)

Q2 Holdings, Inc is a financial technology company that provides cloud-based software to banks, credit unions and other financial institutions. Its platform is designed to help these organizations deliver digital banking experiences, manage customer relationships and expand access to financial services through online and mobile channels.

The company's products and services include digital banking, account opening, lending and loan origination, payments, data and analytics, financial crime prevention, and tools for managing customer engagement.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.