Q2 (QTWO) Q3 2024 earnings summary

Executive summary

• Achieved strong Q3 2024 results with non-GAAP revenue of $175M, up 13% year-over-year, and adjusted EBITDA of $32.6M (19% margin), exceeding guidance.

• Subscription revenue grew 18% year-over-year, now over 80% of total revenue, reflecting a strategic shift to higher-margin recurring streams.

• Significant sales momentum with six enterprise and Tier 1 deals, including three Top 50 U.S. banks, and robust cross-sell activity.

• Achieved Rule of 30 target on a total revenue basis ahead of schedule.

• Backlog grew to over $2.0B, up 30% year-over-year and 4% sequentially.

Financial highlights

• Q3 non-GAAP revenue: $175M, up 13% year-over-year; GAAP net loss narrowed to $11.8M from $23.2M a year ago.

• Adjusted EBITDA: $32.6M, up 66% year-over-year and 9% sequentially; margin at 18.6%.

• Free cash flow for the nine months ended September 30, 2024, was $69.9M, up from $9.8M in the prior year period.

• Gross margin: Non-GAAP 56%, up from 53.9% a year ago; GAAP 50.9%, up from 47.8%.

• Subscription ARR: $654.6M–$655M, up 20% year-over-year; Total ARR: $796M–$796.4M, up 15%.

Outlook and guidance

• Q4 2024 non-GAAP revenue guidance: $178.1M–$181.1M; full-year: $691.5M–$694.5M (11% growth).

• Full-year 2024 subscription revenue growth expected at ~16%, above initial 13% projection; 2025 anticipated at ~15%.

• Q4 adjusted EBITDA guidance: $34.3M–$36.3M; full-year: $122M–$124M (~18% margin).

• Long-term targets (2024–2026): ~14% average annual subscription revenue growth, 300–400bps average annual adjusted EBITDA margin expansion, and >70% free cash flow conversion by 2026.

• Free cash flow as a percentage of adjusted EBITDA expected to exceed 70% for 2024.