Q2 Holdings (QTWO) Q2 FY26 earnings call: guidance and Q&A

How are new agentic AI solutions, particularly on the fraud side, and core digital banking customers seeing the roadmap (Q2 Code, Assistant) catalyzing changes in cross-sell opportunities or win rates?

AI drives confidence in Q2's technology, aiding renewals, extensions, and cross-selling. Strong interest in Q2 Assistant, Code, and fraud products suggests they will help win new deals as few vendors offer real AI solutions for these problems. These products align with customer needs for deposit protection, banker productivity, and personalized experiences.

“what's happening is it drives confidence in our ability to deliver the technology, which helps with renewals, helps with extensions, helps with cross-selling other products. And then on top of that, these products are hitting right where our customers want it.”

asked by Alexander Sklar · answered by Matthew Flake

With 6 months post-cloud migration, what is the update on the subscription gross margin opportunity over the next couple of years?

The shift in revenue mix towards subscription will continue to drive upward pressure on total gross margin. Beyond cloud optimization, other initiatives, including AI efficiencies, contribute to achieving long-term gross margin goals. The company feels good about the direction and execution post-cloud migration.

“But then there are so many other initiatives in place, not just cloud optimization, but as we think about the future of AI and we think about efficiencies around the organization to continue to work on achieving our long-term gross margin goal that we put out there at the beginning of this year.”

asked by Alexander Sklar · answered by Jonathan Price

What is the current demand environment like, particularly regarding budget shifts and prioritization, especially with AI implementation?

Customers are prioritizing commercial functionality (e.g., bulk wires, ERP integration), fraud protection, and relationship pricing. There's a shift in technology spend from 'run the bank' to 'change the bank,' where Q2 is central. AI is creating opportunities, but core business drivers remain strong.

“So there's just the technology spend, it feels like it's going from leaving the back office general ledger kind of run the bank stuff to change the bank, and that's -- we're at the center of that, and that's what the opportunity has been for us, and that's why we continue to see this demand environment that we've seen and we continue to do well in it.”

asked by Andrew Schmidt · answered by Matthew Flake

What is the GA timing, time to revenue, and pipeline for AI SKUs like Q2 Assist and Q2 Code?

General availability for AI products is expected in Q4 FY26. Double-digit customers are in early adopter (EA) for the fraud product, and single-digit for Code and Assistant. Delivery and revenue conversion for AI products will be materially faster than digital banking implementations, but exact time-to-revenue guidance is still too early.

“I think we'll be in general availability for those products in the fourth quarter. And the number and all that -- the revenue is going to come through, we would like to get another quarter before -- quarter or 2 before we start sharing how that's going to flow through the P&L.”

asked by Andrew Schmidt · answered by Matthew Flake

Is the risk and fraud business expected to outgrow overall subscription revenue growth for some time, and what innings is the company in for monetizing these products?

The fraud portfolio is growing at a premium to the total business and is expected to continue for years, especially with new AI fraud products. Fraudsters' continuous innovation ensures a long tail for this segment, making it an accretive growth story.

“I mean, certainly, when you take the fraud portfolio overall, it is growing at a premium to the total of the business. And we think there's an opportunity for that to be true for years to come, especially when you think about the new fraud AI products that we just talked about at length with UAM.”

asked by Terrell Tillman · answered by Jonathan Price

Now that the balance sheet is strong, what are the capital allocation priorities, especially regarding build, partner, or buy, and Innovation Studio partners?

The company has flexibility for share repurchases (additional $350M authorized), reinvestment in the business to elongate the growth curve (evidenced by lighter margin expansion in FY27 targets), and opportunistic M&A. They are not doing deals for the sake of it but have the capacity to be opportunistic.

“So long-winded answer, but the reality is it's all three of those things that we're going to be able to optimize for now going forward.”

asked by Cristopher Kennedy · answered by Jonathan Price

How is Q2 managing token costs and the cost structure of AI products, and what does the model look like for ramping this part of the business?

For external products, Q2 is testing proper guardrails, caps, and pricing schemes in the EA phase. Internally, they are focused on model management and optimizing for caching and effective prompting to bend the exponential spend curve. The goal is to use the right model for the right use case to ensure a healthy spend-to-value ratio.

“In terms of how we're managing the cost structure, again, we're in EA on the 3 that we've announced and talked about, we think we have the proper guardrails in place in terms of caps and the ability to throttle token utilization embedded in the product, and we have a pricing scheme that will manage that.”

asked by Daniel Perlin · answered by Jonathan Price