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    QTWO
    Earnings call· Jun 2026(Q2 FY26)

    Q2 Holdings Q2 FY26 earnings call QTWO

    Jul 29, 2026 Source

    Executive summary

    Q2 Holdings Q2 FY26 — Strong Execution, Record Profitability, and AI Traction

    Q2 Holdings delivered robust Q2 FY26 results, driven by strong subscription revenue growth and expanding profitability, highlighted by record adjusted EBITDA. The company is actively leveraging its platform to integrate AI into its offerings, addressing customer priorities in efficiency, fraud protection, and digital experience differentiation. With a healthy pipeline and significant capital return capacity, Q2 is well-positioned for continued growth and shareholder value creation.

    Highlights

    5

    • Revenue of $219.8 million, representing 13% year-over-year growth.

    • Adjusted EBITDA of $62.8 million, up 37% year-over-year, with a record margin of 28.6%.

    • Generated $51 million in free cash flow and ended the quarter debt-free after repaying $304 million in convertible notes.

    • Strong bookings quarter with 8 total Tier 1 and enterprise wins across digital banking, risk and fraud, and relationship pricing.

    • Board approved an additional $350 million share repurchase authorization, bringing total capacity to $375 million.

    Concerns

    2

    • Non-subscription revenues were roughly flat year-over-year due to ongoing pressure in discretionary professional services offerings.

    • Total ARR growth (13% YoY) remains below subscription ARR growth (15% YoY) due to non-subscription revenue trends.

    Guidance & targets

    6
    CategoryTargetConfidence
    Third quarter revenue
    $218.5 million to $222.5 million
    medium materiality
    High
    Full-year 2026 revenue
    $881 million to $886 million
    high materiality
    High
    Full-year 2026 subscription revenue growth
    approximately 14.5%
    high materiality
    High
    Third quarter adjusted EBITDA
    $58.5 million to $61.5 million
    medium materiality
    High
    Full-year 2026 adjusted EBITDA
    $244 million to $248 million
    high materiality
    High
    2027 subscription revenue growth
    12.5% to 13%
    high materiality
    High

    Operational metrics

    27
    Non-GAAP gross margin
    62.3%up 480 bps YoY; up 20 bps QoQ
    Q2 FY26

    Record non-GAAP gross margin, driven by cloud migration completion and shift to subscription revenue.

    Non-GAAP gross margin
    57.5%
    Q2 FY25

    Prior year period non-GAAP gross margin.

    Non-GAAP gross margin
    62.1%
    Q1 FY26

    Prior quarter non-GAAP gross margin.

    Non-GAAP operating expenses as % of revenue
    37.2%down 100 bps YoY
    Q2 FY26

    Total non-GAAP operating expenses were $81.7 million.

    Non-GAAP operating expenses as % of revenue
    38.2%
    Q2 FY25

    Total non-GAAP operating expenses were $74.5 million.

    Non-GAAP operating expenses as % of revenue
    37.7%
    Q1 FY26

    Total non-GAAP operating expenses were $81.7 million.

    Adjusted EBITDA
    $62.8Mup 37% YoY; up 5% QoQ
    Q2 FY26

    Record adjusted EBITDA.

    Adjusted EBITDA
    $45.8M
    Q2 FY25

    Prior year period adjusted EBITDA.

    Adjusted EBITDA
    $60M
    Q1 FY26

    Prior quarter adjusted EBITDA.

    Adjusted EBITDA margin
    28.6%up 510 bps YoY; up 80 bps QoQ
    Q2 FY26
    Adjusted EBITDA margin
    23.5%
    Q2 FY25

    Prior year period adjusted EBITDA margin.

    Adjusted EBITDA margin
    27.7%
    Q1 FY26

    Prior quarter adjusted EBITDA margin.

    Cash and investments balance
    $106Mdown from $379M QoQ
    Q2 FY26

    Decline driven by repayment of convertible notes and share repurchases.

    Cash and investments balance
    $379M
    Q1 FY26

    Balance at the end of the prior quarter.

    Share repurchases executed
    $23M
    Q2 FY26

    Executed during the quarter.

    Share repurchases executed
    $125M
    YTD Q2 FY26

    Repurchased under existing $150 million authorization.

    Share repurchase authorization
    $150M
    Existing

    Existing authorization, with $25 million remaining.

    Share repurchase authorization
    $350M
    Additional

    Approved by Board of Directors, bringing total available capacity to $375 million.

    Share repurchase authorization
    $375M
    Total available

    Total available repurchase capacity after additional authorization.

    Subscription revenue as % of total revenue
    83%
    Q2 FY26
    Subscription revenue growth
    15%YoY
    Q2 FY26

    Benefited in part from a favorable comparison to Q2 FY25.

    Subscription revenue growth
    2%QoQ
    Q2 FY26
    Total annualized recurring revenue (ARR)
    $971Mup 13% YoY; up 3% QoQ
    Q2 FY26

    Ending balance.

    Total annualized recurring revenue (ARR)
    $861M
    Q2 FY25

    Ending balance in prior year period.

    Total annualized recurring revenue (ARR)
    $945M
    Q1 FY26

    Ending balance in prior quarter.

    Subscription ARR
    $826Mup 15% YoY
    Q2 FY26

    Ending balance. Growth benefited in part from a favorable comparison to Q2 FY25.

    Subscription ARR
    $716M
    Q2 FY25

    Ending balance in prior year period.

    Industry KPIs

    6
    MetricValueDetails
    Revenue growth$219.8MUSD
    Arr net new arr$971MUSD
    Bookings billings$2.8BUSD
    Large deal new logo metrics8wins
    Operating FCF margin rule of 4028.6%%
    Ai product adoption monetizationDouble-digitcustomers

    Orderbook & backlog

    1
    Ending backlog$2.8BQ2 FY26

    up $22M QoQ; up $404M YoY

    Increased by 1% sequentially and 17% year-over-year. Driven by booking success across new expansion and renewal activity.

    Product announcements

    3
    ProductTypeDetails
    Q2 Assistantlaunch
    Q2 Codelaunch
    Account Takeover Productlaunch

    Deals & partnerships

    2
    Top 25 U.S. bankExpansion of existing relationship to include relationship pricing capabilities.

    This customer first signed for small business and commercial digital banking in 2023, then risk and fraud products last year, and now relationship pricing in Q2 FY26.

    $9 billion bank (acquirer)Acquisition of a $2 billion asset size Q2 customer, leading to the adoption of Q2 across the entire combined entity.

    A $2 billion asset size Q2 customer was acquired by a $9 billion bank. The combined entity made the decision to adopt Q2 across the entire bank after an open competitive evaluation.

    Risks & headwinds

    2
    Pressure on discretionary professional services offeringsQ2 FY26 and ongoing

    Non-subscription revenues were roughly flat year-over-year.

    Mitigation: Contemplated in the updated guidance for the remainder of the year.

    Increasing cost and complexity of fraudOngoing

    Not quantified, but described as a continuous enterprise-wide challenge driving increasing levels of attention and investment.

    Mitigation: Q2 is developing and deploying AI-powered fraud protection products (e.g., Account Takeover product) leveraging its platform's central position and data visibility.

    What to watch in Q3 FY26

    5

    AI Product General Availability and Early Adopter Traction

    Q4 FY26
    CurrentDouble-digit customers for fraud product, single-digit for Code/Assistant in EA.
    TargetIncreased early adopter numbers, successful GA in Q4.

    Why it matters

    Indicates initial market acceptance and future revenue potential for new AI offerings.

    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. But as we talked about, we have double-digit people in EAs right now for the fraud product and single digits on Code and Assistant.

    Q&A highlights

    7

    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

    2 min read5 chapters

    Detailed Narrative

    01

    AI Product Strategy and Customer Engagement

    Q2 showcased Q2 Assistant, Q2 Code, and new fraud products at CONNECT 26, receiving strong customer interest. These products aim to embed AI into digital banking workflows for efficiency, accelerate development, and strengthen fraud protection, aligning with customer demand for practical AI applications. The company noted that Q2 Assistant was the most frequently demoed item, indicating strong customer interest in tangible AI use cases. Early adopter programs are underway for these AI offerings, with double-digit customers for the fraud product and single-digit for Q2 Code and Q2 Assistant.

    02

    Bookings Strength and M&A Impact

    The company reported a strong bookings quarter with 8 Tier 1 and enterprise wins across its portfolio. A significant win involved a $2 billion Q2 customer being acquired by a $9 billion bank, with the combined entity choosing Q2's solution after a competitive evaluation. This demonstrates the competitive strength of Q2's digital banking solutions and its ability to benefit from M&A activity within its customer base, whether as an acquirer or acquired institution.

    03

    Relationship Pricing Momentum

    A top 25 U.S. bank expanded its relationship with Q2 to include relationship pricing, illustrating the effectiveness of the company's 'land and expand' model. This deal highlights the synergy between commercial digital banking and relationship pricing, helping commercial banks improve profitability across loans, deposits, and fee-based products. Management noted that relationship pricing was a key driver of bookings success in the quarter.

    04

    Financial Strength and Capital Allocation

    Q2 retired its $304 million convertible notes at maturity in June, ending the quarter debt-free. The company generated $61 million in cash flow from operations and $51 million in free cash flow. The Board approved an additional $350 million share repurchase authorization, bringing total available capacity to approximately $375 million. This reflects confidence in the business and a commitment to allocating capital to deliver shareholder value, while maintaining flexibility for organic investment and inorganic opportunities.

    05

    Gross Margin Expansion and Cloud Migration

    Non-GAAP gross margin expanded to a record 62.3% for Q2 FY26, an increase of 480 basis points year-over-year and 20 basis points sequentially. This improvement is attributed to the completion of the cloud migration earlier in the year and a continued shift in revenue mix towards higher-margin subscription revenue. The company is focused on continued optimization post-cloud migration to achieve its long-term gross margin goals.

    AI-generated summary of the company’s earnings call. Not investment advice.