Q2 (NYSE:QTWO) executives highlighted what they described as a strong finish to 2025, pointing to robust fourth-quarter bookings, double-digit subscription revenue growth, expanding profitability, and higher free cash flow generation. Management also issued 2026 guidance and introduced longer-term margin targets that extend through 2030.
Fourth-quarter performance and bookings momentum
CEO Matt Flake said the company closed the year with “solid execution across bookings, revenue, and profitability.” In the fourth quarter, Q2 posted 16% year-over-year subscription revenue growth, expanded adjusted EBITDA margins by more than 400 basis points year-over-year, and generated free cash flow of $56.6 million.
- A Tier One institution that bought relationship pricing and commercial digital banking
- A $40 billion digital banking customer that expanded into commercial and new fraud products
- A Helix deal with a top five credit union
Management emphasized that bookings continued to reflect a mix of net new wins and expansions with existing customers.
Full-year 2025: Growth, expansion, and M&A-driven activity
Flake called 2025 Q2’s strongest year across bookings, revenue, and profitability, citing “consistent activity up market” and a total of 26 enterprise and Tier One deals. Half of those deals came from existing customer expansions, with the remainder driven by new logos.
He said demand remained broad across the company’s product lines, with digital banking providing a foundation for wins across banks and credit unions. He also pointed to relationship pricing performance, including net new Tier One execution, the go-live of a top five bank, and long-term renewals with multiple top 10 U.S. banks.
Risk and fraud was described as one of Q2’s fastest-growing product lines in 2025, with Flake citing increased customer investment in fraud mitigation. He said Q2 signed the largest fraud deal in company history with a $200 billion bank.
Flake also discussed an improvement in bank M&A activity and said it was a net positive for the business. Of M&A deals involving a Q2 customer in 2025, he said 93% selected Q2 as the go-forward solution.
Financial results: ARR, backlog, margins, and cash flow
CFO Jonathan Price said fourth-quarter and full-year results exceeded the high end of Q2’s guidance, supported by subscription revenue growth and operational efficiency gains. Fourth-quarter total revenue was $208.2 million, up 14% year-over-year and 3% sequentially. Full-year revenue was $794.8 million, up 14% year-over-year, which Price said was Q2’s highest annual growth rate since 2021.
Subscription revenue grew 17% for the full year and represented 82% of total revenue. Price said Q2 expects subscription revenue to continue rising as a mix of overall revenue in 2026. Non-subscription revenue grew 2% for the full year, partially driven by services revenue and higher professional services revenue related primarily to M&A-related core conversions.
Key operating metrics discussed on the call included:
- Total ARR: $921 million, up 12% year-over-year (from $824 million)
- Subscription ARR: $780 million, up 14% year-over-year (from $682 million)
- Ending backlog: $2.7 billion, up 7% sequentially and 21% year-over-year
- Total net revenue retention (TTM): 113% in 2025 vs. 109% in 2024
- Subscription net revenue retention: ~115% vs. 114% in 2024
- Revenue churn: 5.2% vs. 4.4% in 2024, which Price attributed to higher M&A activity
Gross margin was 58.6% in the fourth quarter, up from 57.4% a year earlier. Full-year gross margin was 58%, up from 56% in the prior year, driven by subscription mix and operational efficiencies, partially offset by cloud migration costs. Price said Q2 completed its cloud migration in January 2026.
Adjusted EBITDA was $51.2 million in the fourth quarter, up 36% year-over-year, and full-year adjusted EBITDA was $186.5 million, up 49% from 2024. Q2 ended 2025 with 2,549 employees, up from 2,476, with most net additions in R&D.
Q2 ended the quarter with $433 million in cash, cash equivalents, and investments, down from $569 million in the prior quarter. Price attributed the change primarily to the retirement of $191 million of 2025 convertible notes that matured in November and $5 million of open-market share repurchases. The company generated $173 million of free cash flow for the year, representing a 93% free cash flow conversion rate versus adjusted EBITDA.
2026 guidance and longer-term framework through 2030
For 2026, Q2 guided first-quarter revenue of $212.5 million to $216.5 million and full-year revenue of $871 million to $878 million, representing approximately 10% year-over-year growth. Price said Q2 raised its subscription revenue growth outlook to “at least 14%” from a prior expectation of approximately 13.5%.
Adjusted EBITDA guidance was set at $52.5 million to $55.5 million for the first quarter and $225 million to $230 million for the full year, representing roughly 26% of revenue.
Price said 2026 is the final year of the three-year framework introduced in February 2024 and that Q2 has “meaningfully outperformed” those goals. Looking beyond 2026, Q2 targeted 2027 subscription revenue growth of 12.5% to 13% and adjusted EBITDA margin expansion of 150 to 200 basis points.
For longer-term targets, management said it expects that by the end of 2030 the business can achieve non-GAAP gross margins of at least 65% and adjusted EBITDA margins of at least 35%, while noting the path may not be linear.
Strategy: Commercial scale, fraud expansion, and AI positioning
Flake said commercial banking remains an important growth driver and cited scale metrics from 2025: Q2 processed over $4 trillion in transaction volume, up 21% year-over-year, with December exceeding $400 billion for the first time.
He also described Innovation Studio as a foundational component of strategy, saying nearly every net new digital banking deal in 2025 included Innovation Studio. In the Q&A, management said Innovation Studio’s revenue model includes revenue sharing, with a high-margin profile, and called it central to helping partners bring AI capabilities into financial services through Q2’s ecosystem.
On cross-sell opportunity, Flake said only about 10% of Tier One institutions (above $5 billion in assets) have all three of Q2’s retail, commercial, relationship pricing, and fraud solutions. He added that fraud penetration within Q2’s digital banking customer base was roughly 25% to 30% “in totality,” and said the company sees significant runway to expand adoption.
Executives also discussed AI as both a product enabler and an efficiency lever. Flake said Q2 has live or early-adopter AI products in areas including fraud, personalization, back office, and banker-facing operations, and is building platform-level capabilities such as AI-assisted coding tools for developers and AI-enhanced support tools. Price said Q2’s 2026 and 2027 margin expectations do not depend on AI-driven efficiencies, but added that the company expects AI to contribute more meaningfully as it progresses toward its longer-term 2030 margin targets.
On non-subscription revenue, Price said the company expects combined services and transaction revenue to decline at a mid-single-digit rate for the foreseeable future, citing continued weakness in discretionary services engagements and legacy bill pay, with 2025’s strength partly tied to M&A core conversions that it does not expect to grow from elevated levels.
About Q2 (NYSE:QTWO)
Q2 Holdings, Inc develops and delivers cloud-based digital banking solutions that enable banks and credit unions to enhance customer and member experiences. The company’s core offerings include the Q2 Platform, a comprehensive suite of online and mobile banking applications for retail and commercial customers, as well as digital onboarding, payments, and fraud prevention tools. Q2’s platform also provides analytics and reporting capabilities designed to help financial institutions tailor products, optimize workflows, and drive engagement.
Founded in 2004 and headquartered in Austin, Texas, Q2 serves hundreds of financial institutions across the United States and Canada.
