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What changed in Q2 Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Q2 Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+643 added−645 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-21)

Top changes in Q2 Holdings, Inc.'s 2023 10-K

643 paragraphs added · 645 removed · 516 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

159 edited+25 added−30 removed79 unchanged
Biggest changeWe provide the following digital banking platform solutions: Solution Features Q2 Consumer Banking • Browser-based digital banking solution • Unified and robust financial experience across digital channels • Comprehensive financial institution-branded digital banking capabilities such as account access, check balancing, funds transfers, bill pay, recurring payments processing, statement viewing and new products and service applications • Management functionality such as End-User enrollment, password management, permissions, rights management, reports, integrated security as well as feature assignment for digital banking Q2 Small Business and Commercial • Business account opening, onboarding workflow solution supporting small businesses through corporate customers with new and existing commercial customer sales • Full suite of commercial digital banking services to support small business through corporate customers inclusive of reporting, payment and data security services • Digital banking support for single and batch ACH processing, payroll, state and federal tax payments and domestic and international wires • Advanced digital banking solutions to deliver a flexible, efficient, and positive experience for all types of business users, from sole proprietors to enterprise-level account holders • Allows business End Users to more efficiently manage and execute higher volume and more complex transactions by restricting transactions based on accounts, subsidiaries, approval levels, End-User roles, date and time as well as geographic location • Allows advanced reporting designed to help financial institutions deliver key business information to commercial End Users Q2mobile Remote Deposit Capture • Partnered solution that allows remote check deposit capture utilizing End Users' camera-ready mobile and tablet devices Q2 Sentinel • Real-time security analytics solution designed to help financial institutions detect and block suspect transactions • Behavioral analytics and policy-based decision prompts for financial institution administrators • Continuous learning of End-User behaviors while providing an analysis of transaction activity via easy-to-use case management tools supporting either the authorization or interruption of transactions Q2 Patrol • Event-driven validation product designed to mitigate certain high-risk, non-transactional fraudulent activity • Behavioral machine learning designed to identify fraudulent digital banking sessions • Analyzes past login behavior and device details, including IP addresses, geolocation, device type, time stamps and more to create a digital footprint for each End User • Enhances security by requiring End Users to further authenticate a digital banking session if that session is deemed suspect based on abnormal behavioral login and device detail • Supplies session details in the End-User interface to better involve End Users in their own account safety • Reporting for regulatory compliance and risk reduction Q2 SMART • Targeting and messaging platform that allows financial institutions to analyze End-User data utilizing machine learning and statistical analysis designed to identify opportunities to grow their End-User relationships with targeted offerings based on specific End-User behavior • Multi-channel approach to identify traits across a broad range of End-User behavioral patterns to help financial institutions create new End-User campaigns, conversations and offers based on specific End-User behaviors • Recommendation engine to determine which products an End User is most likely to adopt • Summarizes End User behavioral data using clear and easily understood metrics, graphs and charts that are updated daily and presented through an intuitive End-User interface 14 Table of Contents Q2 Contextual Personal Financial Management (PFM) • Allows End Users to easily add external accounts and view them together with internal accounts on their digital banking home page • Allows financial institutions the ability to offer End Users simplified transaction descriptions and automatic categorization across their internally and externally held accounts • Enables financial institutions to better understand End Users' consumer financial data, analytics, and behaviors • Allow End Users to view their personal data in a variety of ways, such as budgets, spending, net worth, debt, and trends Q2 Goals • Enables End Users to establish and save towards specific savings goals • Allows End Users to easily track their progress and activity towards achieving their savings goals • Provides financial institutions visibility into End Users' savings goals enabling them to assess additional opportunities to offer additional financial services to assist such End Users Q2 CardSwap • Allows financial institutions who issue debit or credit cards to enable End Users receiving newly issued cards to automatically change their payment information with existing subscription and digital point-of-sale services, which have previously been set up for payment with a different card • Assists End Users with compromised card replacement Q2 Gro • Digital account opening and digital sales and marketing platform that drives customer acquisition growth across digital channels • Enables financial institutions to make personalized recommendations and cross-sell banking products, such as deposit accounts and loans, to both retail and business End Users • Combines advanced, multichannel account opening with targeted marketing capabilities as well as a shopping cart experience Q2 Innovation Studio • Consists of a portfolio of technologies that financial institutions can use to design, develop and distribute innovative products, services and features through our digital banking platform, including the: Customer Program; Partner Developer Program; Partner Accelerator; and, Q2 Partner Marketplace • Customer Program: Utilizing Q2 Caliper SDK, financial institutions are provided with the tools, knowledge and access necessary to extend our digital banking platform by developing custom features and integrations through open APIs • Partner Developer Program: Allows the same custom development as the Customer Program, but allowing financial institutions to partner with Q2-certified development partners introduced by Q2 • Partner Accelerator: Leveraging a growing ecosystem of third-party integrations of Fintech and other digital solutions to the Q2 digital banking platform, financial institutions can choose to partner with such providers by purchasing access to and rapidly deploying their integrated solutions • Q2 Partner Marketplace: Online marketplace of pre-integrated third-party applications financial institutions can offer to their End Users and for which they can receive a revenue share from the End-User fees Q2 Biller Direct • Bill payment solution that aggregates End Users' bills and payments into a single view, enabling bill presentment, aggregation and bill pay functionality ClickSWITCH • Allows financial institutions, upon the direction of an End User, to switch the End User's direct deposits to the End User's account with the financial institution Sensibill • Spend management solution that allows End Users to capture business and personal expenses, enabling them to better manage their financial activity • Allows financial institutions to collect and analyze product-level End User purchase data, enabling the creation of highly differentiated user profiles utilizing AI and machine learning • Allows financial institutions to present highly targeted behavioral purchase insights to the End User Centrix Dispute Tracking System • Electronic transaction dispute management solution • Assists in the administration of disputed electronic transactions (debit card, ATM, ACH and remittance transfers) for the purpose of compliance with Regulation E of the Electronic Fund Transfer Act • Includes an optional Fraud Alerts module which allows customers to quickly and accurately measure the financial impact of data breaches involving card payments Centrix Payments I.Q.
Biggest changeSystem • ACH file monitoring and risk reporting solution • Simple and intuitive analytical reporting of both originated and inbound ACH activity, including measures designed to safeguard against ACH fraud with calendaring and real-time validation of originated files Centrix Exact/Transaction Management System • Tool designed to help financial institutions prevent fraud, focused on the transaction management needs of commercial End Users • Encompasses check positive pay with payee match, ACH positive pay and full account reconciliation Q2mobile Remote Deposit Capture • Partnered solution that allows remote check deposit capture utilizing End Users' camera-ready mobile and tablet devices Q2 Sentinel • Real-time security analytics solution designed to help financial institutions detect and block suspect transactions • Behavioral analytics and policy-based decision prompts for financial institution administrators • Continuous learning of End-User behaviors while providing an analysis of transaction activity via easy-to-use case management tools supporting either the authorization or interruption of transactions Q2 Patrol • Event-driven validation product designed to mitigate certain high-risk, non-transactional fraudulent activity • Behavioral machine learning designed to identify fraudulent digital banking sessions • Analyzes past login behavior and device details, including IP addresses, geolocation, device type, time stamps and more to create a digital footprint for each End User • Enhances security by requiring End Users to further authenticate a digital banking session if that session is deemed suspect based on abnormal behavioral login and device detail • Supplies session details in the End-User interface to better involve End Users in their own account safety • Reporting for regulatory compliance and risk reduction Q2 SMART • Targeting and messaging platform that allows financial institutions to analyze End-User data utilizing machine learning and statistical analysis designed to identify opportunities to grow their End-User relationships with targeted offerings based on specific End-User behavior • Multi-channel approach to identify traits across a broad range of End-User behavioral patterns to help financial institutions create new End-User campaigns, conversations and offers based on specific End-User behaviors • Recommendation engine to determine which products an End User is most likely to adopt • Summarizes End User behavioral data using clear and easily understood metrics, graphs and charts that are updated daily and presented through an intuitive End-User interface Q2 Contextual Personal Financial Management (PFM) • Allows End Users to easily add external accounts and view them together with internal accounts on their digital banking home page • Allows financial institutions the ability to offer End Users simplified transaction descriptions and automatic categorization across their internally and externally held accounts • Enables financial institutions to better understand End Users' consumer financial data, analytics, and behaviors • Allow End Users to view their personal data in a variety of ways, such as budgets, spending, net worth, debt, and trends Q2 Goals • Enables End Users to establish and save towards specific savings goals • Allows End Users to easily track their progress and activity towards achieving their savings goals • Provides financial institutions visibility into End Users' savings goals enabling them to assess additional opportunities to offer additional financial services to assist such End Users Q2 CardSwap • Allows financial institutions who issue debit or credit cards to enable End Users receiving newly issued cards to automatically change their payment information with existing subscription and digital point-of-sale services, which have previously been set up for payment with a different card • Assists End Users with compromised card replacement 14 Table of Contents Q2 Gro • Digital account opening and digital sales and marketing platform that drives customer acquisition growth across digital channels • Enables financial institutions to make personalized recommendations and cross-sell banking products, such as deposit accounts and loans, to both retail and business End Users • Combines advanced, multichannel account opening with targeted marketing capabilities as well as a shopping cart experience Q2 Innovation Studio • Consists of a portfolio of technologies that financial institutions can use to design, develop and distribute innovative products, services and features through our digital banking platform, including the: Customer Program; Partner Developer Program; Partner Accelerator; and, Q2 Partner Marketplace • Customer Program: Utilizing Q2 Caliper SDK, financial institutions are provided with the tools, knowledge and access necessary to extend our digital banking platform by developing custom features and integrations through open APIs • Partner Developer Program: Allows the same custom development as the Customer Program, but allowing financial institutions to partner with Q2-certified development partners introduced by Q2 • Partner Accelerator: Leveraging a growing ecosystem of third-party integrations of Fintech and other digital solutions to the Q2 digital banking platform, financial institutions can choose to partner with such providers by purchasing access to and rapidly deploying their integrated solutions • Q2 Partner Marketplace: Online marketplace of pre-integrated third-party applications financial institutions can offer to their End Users and for which they can receive a revenue share from the End-User fees ClickSWITCH • Allows financial institutions, upon the direction of an End User, to switch the End User's direct deposits to the End User's account with the financial institution Q2 Spend Manager • Spend management solution that allows SMB End Users to automate and streamline expense management, resolving cumbersome expense tracking while enabling them to better manage their financial activity • Allows financial institutions to collect and analyze product-level End User purchase data, enabling the creation of highly differentiated user profiles utilizing AI and machine learning • Allows financial institutions to present highly targeted behavioral purchase insights to the End User Digital Lending and Relationship Pricing Solutions PrecisionLender Solutions Our PrecisionLender platform is a cloud-based, data-driven sales enablement, relationship pricing and portfolio management solution that allows financial institutions globally to structure and negotiate commercial lending, deposits and fee-based business transactions more effectively.
We purpose-build our platforms and solutions to enable success for our customers and technology partners by allowing them to digitize their operations and offerings, differentiate their digital brands, integrate traditional and emerging financial services, and ultimately, enhance their End-User acquisition, engagement and retention and improve their operational efficiencies and profitability.
We purpose-build our platforms and solutions to enable success for our customers and technology partners by allowing them to digitize their operations and offerings, differentiate their digital brands, integrate traditional and emerging financial services, and ultimately, enhance their End-User acquisition, engagement and retention and improve their operational efficiencies and profitability.
We generally recognize our revenues over the terms of our customer agreements. The initial term of our digital banking platform customer agreements averages over five years.
We generally recognize our revenues over the terms of our customer agreements. The initial term of our digital banking platform agreements averages over five years.
As a result, we leverage our network of technology partners and insights from our experience with financial institution customers to effectively pursue these markets. • We grow our customer relationships over time: Throughout customer relationships, we employ a structured strategy designed to inform, educate and enhance customer confidence and help our customers identify and implement additional solutions to acquire, engage and retain additional End Users. • Our revenues are highly predictable: To date, a substantial majority of our revenues continue to result from sales of our digital banking platform to RCFIs.
As a result, we leverage our network of technology partners and insights from our experience with financial institution customers to effectively pursue these markets. • We grow our customer relationships over time: Throughout customer relationships, we employ a structured strategy designed to inform, educate and enhance customer confidence and help our customers identify and implement additional solutions to acquire, engage and retain additional End Users. • Our revenues are predictable: To date, a substantial majority of our revenues continue to result from sales of our digital banking platform to RCFIs.
Our marketing programs primarily target digital transformation, technology, finance, operations and marketing executives as well as senior business leaders. Research and Development Our focus on innovation has fueled our growth and enables us to provide our customers secure, cloud-based digital solutions that transform the ways in which financial institutions, FinTechs and other financial service providers engage with End Users.
Our marketing programs primarily target digital transformation, technology, finance, operations and marketing executives as well as senior business leaders. Research and Development Our focus on innovation has fueled our growth and enables us to provide our customers cloud-based digital solutions that transform the ways in which financial institutions, FinTechs and other financial service providers engage with End Users.
RCFIs remain critical to our mission of building stronger and more diverse communities by strengthening their financial institutions. RCFIs have historically sought to differentiate themselves by providing local, personalized banking services that are responsive to the changing needs and circumstances of their communities. Many RCFIs are locally owned and obtain deposits and make lending decisions on a local basis.
RCFIs remain critical to our mission of building stronger and more diverse communities by strengthening their financial institutions. RCFIs have historically sought to differentiate themselves by providing local, personalized banking services that are responsive to the changing needs and circumstances of their communities. Many RCFIs are locally owned and obtain deposits and make digital lending decisions on a local basis.
In certain cases, we engage with customers for more tailored, premium professional services, or Premier Services, with select established customers resulting in a deeper and ongoing level of engagement with them. Under certain circumstances for our digital lending solutions, we also partner with third-party professional system integrators to support our customers in the installation and configuration process.
In certain cases, we engage with customers for more tailored, premium professional services, or Premier Services, with select established customers resulting in a deeper and ongoing level of engagement with them. Under certain circumstances for our CL digital lending solutions, we also partner with third-party professional system integrators to support our customers in the installation and configuration process.
Financial institution customers wishing to customize or supplement our digital banking platform solutions may subscribe to the Q2 Innovation Studio and deploy their own development resources, or utilize certified partners, to develop customized services or unique integrations, allowing them to innovate more quickly and to differentiate their brands leveraging our secure digital banking platform.
Financial institution customers wishing to customize or supplement our digital banking platform solutions may subscribe to the Q2 Innovation Studio and deploy their own development resources, or utilize certified partners, to develop customized services or unique integrations, allowing them to innovate more quickly and to differentiate their digital brands leveraging our digital banking platform.
We offer some of the solutions included in our digital banking platform on a standalone basis to financial institutions as well as Alt-FIs and Fintechs. • Q2 Innovation Studio: Our application program interface, or API, based and software development kit, or SDK, based open technology platform allows our financial institution customers and other technology partners to develop unique extensions of and integrations to our digital banking platform, allowing financial institutions to quickly and easily deploy customized experiences and the latest financial services expected by End Users. • Lending: Our end-to-end digital lending portfolio allows our financial institution, FinTech and Alt-FI customers to simplify the End-User experiences of borrowers, accelerate loan decisioning, and reduce operational inefficiencies through digitization and automation of the traditional loan application and underwriting process.
We offer some of the solutions included in our digital banking platform on a standalone basis to financial institutions as well as Alt-FIs and FinTechs. • Q2 Innovation Studio: Our application program interface, or API, based and software development kit, or SDK, based open technology platform allows our financial institution customers and other technology partners to develop unique extensions of and integrations to our digital banking platform, allowing financial institutions to quickly and easily deploy customized experiences and the latest financial services expected by End Users. • Lending and Relationship Pricing: Our end-to-end digital lending and relationship pricing portfolio allows our financial institution, FinTech and Alt-FI customers to simplify the End-User experiences of borrowers, accelerate loan decisioning, and reduce operational inefficiencies through digitization and automation of the traditional loan application and underwriting process.
In addition, many of our competitors spend more funds on research and development in terms of absolute dollars. Although we compete with point system vendors and core processing vendors, we also partner with some of these vendors for certain data and services utilized in our solutions and receive referrals from them.
In addition, some of our competitors spend more funds on research and development in terms of absolute dollars. Although we compete with point system vendors and core processing vendors, we also partner with some of these vendors for certain data and services utilized in our solutions and receive referrals from them.
We structure our implementation teams to effectively collaborate with the management and technology teams of our customers ensuring the rapid deployment and effective utilization of our solutions. We offer customized professional services to assist our customers with their efforts to extend our offerings and differentiate their brands.
We structure our implementation teams to effectively collaborate with the management and technology teams of our customers ensuring the rapid deployment and effective utilization of our solutions. We offer customized professional services to assist our customers with their efforts to extend our offerings and differentiate their digital brands.
Our solutions must enable our customers to comply with applicable requirements such as the following: • the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act; • the Electronic Funds Transfer Act; • Mobile Banking Guidance; • the Electronic Signatures in Global and National Commerce Act; 23 Table of Contents • federal, state and other usury laws; • the Gramm-Leach-Bliley Act, or GLBA; • the Fair Credit Reporting Act; • the EU General Data Protection Regulation, or GDPR; • laws against unfair, deceptive, or abusive acts or practices; • the Privacy of Consumer Financial Information regulations; • the Bank Secrecy Act and the USA PATRIOT Act of 2001; • the Guidance on Supervision of Technology Services Providers promulgated by the Federal Financial Institutions Examination Council, or FFIEC; • third-party risk management regulations; • the NCUA's Guidelines for Safekeeping of Member Information; • the Guidance on Outsourcing Technology Services promulgated by the FFIEC; and • other federal, state and international laws and regulations.
Our solutions must enable our customers to comply with applicable requirements such as the following: • the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act; • the Electronic Funds Transfer Act; • Mobile Banking Guidance; • the Electronic Signatures in Global and National Commerce Act; • federal, state and other usury laws; • the Gramm-Leach-Bliley Act, or GLBA; • the Fair Credit Reporting Act; • the Americans with Disabilities Act, or ADA; • the EU General Data Protection Regulation, or GDPR; • laws against unfair, deceptive, or abusive acts or practices; • the Privacy of Consumer Financial Information regulations; • the Bank Secrecy Act and the USA PATRIOT Act of 2001; • the Guidance on Supervision of Technology Services Providers promulgated by the Federal Financial Institutions Examination Council, or FFIEC; • third-party risk management regulations; 23 Table of Contents • the NCUA's Guidelines for Safekeeping of Member Information; • the Guidance on Outsourcing Technology Services promulgated by the FFIEC; and • other federal, state and international laws and regulations.
Additionally, over the past several years we have acquired or developed new solutions and additional functionality that serve a broader range of needs of financial institutions as well as the needs of FinTechs, Alt-FIs and Brands.
Additionally, over the past several years we have acquired or developed new solutions and additional functionality that serve a broader range of needs of financial institutions as well as the needs of FinTechs and Alt-FIs.
Security is paramount for digital financial services The risks of theft and fraud have always existed in banking and financial services. However, as the adoption, use, and breadth of digital financial services offerings has increased, the incidence of fraud and theft in digital channels has grown substantially.
Security is paramount for digital financial services The risks of theft and fraud have always existed in banking and financial services. However, as the adoption, use, and breadth of digital financial services offerings has increased, fraud and theft in digital channels has grown substantially.
We utilize prevailing industry configurations to minimize service interruptions, and regularly consider and implement improvements to enhance the resiliency of our services, including our recent improvements to actively distribute services across both data centers.
We utilize prevailing industry configurations to minimize service interruptions, and regularly consider and implement improvements to enhance the resiliency of our services, including our improvements to actively distribute services across both data centers.
In addition, we feel that our position to generate cash flow from operations affords us with opportunities to invest and pursue our growth strategy, which may not be as easy for companies who are not generating cash flows from operations. • Our award-winning culture drives innovation and customer success: We believe our award-winning, innovation-focused culture and the location of our operations facilitate recruiting and retaining top development, integration and design talent.
In addition, we feel that our ability to generate cash flow from operations affords us with opportunities to invest and pursue our growth strategy, which may not be as easy for companies who are not generating cash flows from operations. • Our award-winning culture drives innovation and customer success: We believe our award-winning, innovation-focused culture and the location of our operations facilitate recruiting and retaining top development, integration and design talent.
To accomplish this goal, we are pursuing the following growth strategies: • Further penetrate our large market opportunity: We believe financial institutions are increasingly adopting cloud-based digital banking solutions.
To accomplish this goal, we are pursuing the following growth strategies: • Further penetrate our large market opportunity: Financial institutions are increasingly adopting cloud-based digital banking solutions.
Our solutions utilize a software-as-a-service, or SaaS, delivery model, designed to scale with our customers as they grow their business, add End Users on our solutions and expand the breadth of digital services and solutions they offer. On average, Q2 digital banking platform customers have historically grown contracted revenue by approximately 38% within 36 months of implementation.
Our solutions utilize a software-as-a-service, or SaaS, delivery model, designed to scale with our customers as they grow their business, add End Users on our solutions and expand the breadth of digital services and solutions they offer. On average, Q2 digital banking platform customers have historically grown contracted revenue by approximately 42% within 36 months of implementation.
The CL digital lending platform utilizes the Force.com platform and includes the following distinct solutions, which financial institutions, FinTechs and Alt-FIs can use as a complete package or individually to supplement existing operations: Solution Features Q2 CL Portal • Configurable front-end portal that provides a differentiated borrowing experience for consumer, commercial and small business loans for borrowers, investors and stakeholders Q2 CL Originate • Customer-centric, agile loan origination and underwriting solution • Designed to meet the needs of consumer, commercial, small business, marketplace, or peer-to-peer, and lending • Manages the entire origination and underwriting process including loan file management, workflows, auto-decisioning, parties management, credit memo, credit analysis, approvals and covenants Q2 CL Loan • Loan servicing application that automates loan billing, payments, collections, and accounting within one robust, flexible, and secure platform • Manages portfolios, increases transaction volume, and rapidly brings new products to market Q2 CL Marketplace • Cloud-based marketplace application designed to handle the complexities of managing the entire online marketplace, or peer-to-peer, loan cycle, including online origination, loan fractionalization, servicing and managing multiple investor portfolios Q2 CL Collections • Customer-centric collections application that enables lenders to define and automate collection strategies, optimize customer interaction across channels, lower risk, and reduce technical and operational costs • Allows lenders to track customer interactions, set priorities and optimize workloads 16 Table of Contents Q2 Innovation Studio The Q2 Innovation Studio is a portfolio of technologies and solutions that financial institution customers, FinTechs and other digital solutions providers can leverage to design, develop, and distribute innovative products, services, features, and integrations through Q2's digital banking platform.
The CL digital lending platform utilizes the Force.com platform and includes the following distinct solutions, which financial institutions, FinTechs and Alt-FIs can use as a complete package or individually to supplement existing operations: Solution Features Q2 CL Portal • Configurable front-end portal that provides a differentiated borrowing experience for consumer, commercial and SMB loans for borrowers, investors and stakeholders Q2 CL Originate • Customer-centric, agile loan origination and underwriting solution • Designed to meet the needs of consumer, commercial, SMB, marketplace, or peer-to-peer, and lending • Manages the entire origination and underwriting process including loan file management, workflows, auto-decisioning, parties management, credit memo, credit analysis, approvals and covenants Q2 CL Loan • Loan servicing application that automates loan billing, payments, collections, and accounting within one robust and flexible platform • Manages portfolios, increases transaction volume, and rapidly brings new products to market Q2 CL Marketplace • Cloud-based marketplace application designed to handle the complexities of managing the entire online marketplace, or peer-to-peer, loan cycle, including online origination, loan fractionalization, servicing and managing multiple investor portfolios Q2 CL Collections • Customer-centric collections application that enables lenders to define and automate collection strategies, optimize customer interaction across channels, lower risk, and reduce technical and operational costs • Allows lenders to track customer interactions, set priorities and optimize workloads Q2 Innovation Studio The Q2 Innovation Studio is a portfolio of technologies and solutions that financial institution customers, FinTechs and other digital solutions providers can leverage to design, develop, and distribute innovative products, services, features, and integrations through Q2's digital banking platform.
These laws and regulations are constantly evolving and affect the conduct of financial service providers operations and, as a result, the business of their technology providers.
These laws and regulations are constantly evolving and affect the conduct of financial service providers' operations and, as a result, the business of their technology providers.
Our digital banking platform and lending solutions provide our financial institution customers with a comprehensive view of operational and End-User activity across channels and devices allowing them to look for opportunities to improve End-User engagement and grow their End-User relationships with targeted offerings based on specific behavior.
Our digital banking platform and lending and relationship pricing solutions provide our financial institution customers with a comprehensive view of operational and End-User activity across channels and devices allowing them to look for opportunities to improve End-User engagement and grow their End-User relationships with targeted offerings based on specific behavior.
Many of our competitors have significantly more financial, technical, marketing and other resources than we have, may devote greater resources to the promotion, sale and support of their systems than we can, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we have.
Some of our competitors have significantly more financial, technical, marketing and other resources than we have, may devote greater resources to the promotion, sale and support of their systems than we can, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we have.
These regulatory constraints provide an incentive for FinTechs and other financial services providers, including Brands, to partner with financial institutions rather than making the significant investments in expertise and infrastructure necessary to obtain a banking charter and otherwise become regulatory-compliant.
These regulatory constraints provide an incentive for FinTechs and other financial services providers to partner with financial institutions rather than making the significant investments in expertise and infrastructure necessary to obtain a banking charter and otherwise become regulatory-compliant.
Our Q2 Innovation Studio offerings, which we market to financial institutions and FinTechs, allows our financial institution customers and other technology partners to integrate financial services to our digital banking platform, allowing financial institutions to quickly and efficiently incorporate the integrated solutions into their offerings and operations.
Our Q2 Innovation Studio offerings, which we market to financial institutions and FinTechs, allow our financial institution customers and other technology partners to integrate financial services to our digital banking platform, allowing financial institutions to quickly and efficiently incorporate the integrated solutions into their offerings and operations.
We also provide global access to an Employee Assistance Program (EAP) providing our employees and anyone living in their household with access to a variety of resources, including mental health and counseling, work life balance and online legal resources.
We also provide global access to an Employee Assistance Program (EAP) connecting our employees and anyone living in their household with access to a variety of resources, including mental health and counseling, work life balance and online legal resources.
We intend to further penetrate our large market opportunity and increase our number of financial institution and other financial services provider customers using our broad range of digital solutions through acquiring and developing additional solutions, investments in our sales and marketing organization and related activities. • Grow revenues by expanding our relationships with existing customers: We believe there is significant opportunity to expand our relationships with existing customers by selling them additional solutions.
We intend to further penetrate our large market opportunity and increase our number of financial institution and other financial services provider customers using our broad range of digital solutions through acquiring and developing additional solutions, investments in our sales and marketing organization and related activities. 12 Table of Contents • Grow revenues by expanding our relationships with existing customers: We believe there is significant opportunity to expand our relationships with existing customers by selling them additional solutions.
In order to ensure compliance with these laws, technology providers and financial service providers may be required to implement operating policies and procedures to protect the privacy and security of their, the financial service providers' and their End Users' information, and to undergo periodic audits and examinations.
To ensure compliance with these laws, technology providers and financial service providers may be required to implement operating policies and procedures to protect the privacy and security of their, the financial service providers' and their End Users' information, and to undergo periodic audits and examinations.
Helix combines a cloud-based, real-time core processing platform with the services necessary to support it, including integrated issuer processing, identity verification technologies and the banking services of one of Q2's financial institution partners.
Helix combines a cloud-native, real-time core processing platform with the services necessary to support it, including integrated issuer processing, identity verification technologies and the banking services of one of Q2's financial institution partners.
Our open digital banking platform now spans onboarding, banking and a vast set of integrations to third-party financial services across the retail, small business and commercial segments, and provides our financial institution customers with the tools, knowledge, and access necessary to: monitor and optimize End-User acquisition, engagement and retention; customize and extend the platform; and, improve operational efficiencies.
Our open digital banking platform now spans onboarding, banking and a vast set of integrations to third-party financial services across the retail, SMB and commercial segments, and provides our financial institution customers with the tools, knowledge, and access necessary to: monitor and optimize End-User acquisition, engagement and retention; customize and extend the platform; and, improve operational efficiencies.
This design process and our broad feature offerings enable our solutions to deliver a modern, unified End-User experience across digital channels. • Delivery of robust digital financial services across multiple channels: Our solutions enable our customers to deliver robust and integrated digital financial services to their End Users who increasingly expect and appreciate the ability to manage their financial experiences anytime, anywhere and on any device.
This design process and our broad feature offerings enable our solutions to deliver a modern, unified End-User experience across digital channels. 10 Table of Contents • Delivery of robust digital financial services across multiple channels: Our solutions enable our customers to deliver robust and integrated digital financial services to their End Users who increasingly expect and appreciate the ability to manage their financial experiences anytime, anywhere and on any device.
We also enable customers to address their market-specific needs via our extension and integration frameworks, which is a key aspect of our technology strategy. Technology and Operations Due to the highly regulated nature of the financial services industry, our digital banking platform combines both multi-tenant and single instance aspects.
We also enable customers to address their market-specific needs via our extension and integration frameworks, which is a key aspect of our technology strategy. 17 Table of Contents Technology and Operations Due to the highly regulated nature of the financial services industry, our digital banking platform combines both multi-tenant and single instance aspects.
The confluence of these challenges and opportunities faced by financial institutions and other financial services providers, including Brands, has created an environment in which cooperation, rather than competition, can be the optimal solution.
The confluence of these challenges and opportunities faced by financial institutions and other financial services providers has created an environment in which cooperation, rather than competition, can be the optimal solution.
We offer our solutions to financial institutions, FinTechs, Alt-FIs, and Brands wishing to incorporate banking into their customer engagement and servicing strategies. Our integrated, end-to-end portfolio of solutions and services are designed to enable End Users and customers to engage with and manage financial experiences anytime, anywhere, and from any device, across all devices.
We offer our solutions to financial institutions, FinTechs and Alt-FIs wishing to incorporate banking into their customer engagement and servicing strategies. Our integrated, end-to-end collection of solutions and services are designed to enable End Users and customers to engage with and manage financial experiences anytime, anywhere, and from any device, across all devices.
The structure and terms of our Helix arrangements with FinTechs and Brands vary, but typically involve relatively lower contracted minimum revenues and instead emphasize usage-based revenue, with such revenue recognized as it is incurred. We have achieved significant growth since our inception, including the past three years.
The structure and terms of our Helix arrangements with FinTechs vary, but typically involve relatively lower contracted minimum revenues and instead emphasize usage-based revenue, with such revenue recognized as it is incurred. We have achieved high growth since our inception, including the past three years.
We believe our expanded solution offerings and the continued growth of our customer base and market opportunity have increased the addressable market for our solutions to greater than $15.0 billion.
We believe our expanded solution offerings and the continued growth of our customer base and market opportunity have increased the addressable market for our solutions to greater than $17.0 billion.
This configuration provides us with a flexible foundation to support our innovation, allowing us to position services on a piecemeal basis to maximize their performance, scale, cost, resiliency and security.
This configuration provides us with a flexible foundation to support our innovation, allowing us to position services on a piecemeal basis to optimize their performance, scale, cost, resiliency and security.
The PrecisionLender platform includes the following distinct solutions: Solution Features PrecisionLender Platform • Cloud-based loan pricing and negotiation functionality that provides commercial and small business relationship managers with actionable insights based on analysis of their commercial and small business account holder portfolios to efficiently and effectively price and structure commercial loans, deposits and other fee-based banking services Premium Treasury Pricing • Optional advanced module to the PrecisionLender Platform that enables commercial and small business relationship managers and treasury management officers to collaborate on pricing and structuring fee-based banking services, including the modeling of pro forma revenue and expenses Data Studio • Managed and configured data environment that provides in depth analysis and reporting of a financial institution's commercial and small business account portfolios • Enables commercial and small business managers to assess performance trends as well as identify cross-sales and other opportunities for improvement Andi® • Configurable digital enterprise coach powered by machine learning which accompanies the relationship manager throughout the commercial and small business loan structuring, negotiating and pricing process • Provides recommendations along the way leveraging the real-time analysis being performed by the PrecisionLender Platform and one of the industry's largest commercial banking data sets Cloud Lending Solutions Our Q2 Cloud Lending, or CL, digital lending platform is a cloud-based, end-to-end lending solution that allows financial institutions, FinTechs and Alt-FIs to automate and digitize their lending activities, supporting digital lending applications, scoring, underwriting, servicing and collections for multiple assets classes.
The PrecisionLender platform includes the following distinct solutions: Solution Features PrecisionLender Platform • Cloud-based loan pricing and negotiation functionality that provides commercial and SMB relationship managers with actionable insights based on analysis of their commercial and SMB account holder portfolios to efficiently and effectively price and structure commercial loans, deposits and other fee-based banking services Premium Treasury Pricing • Optional advanced module to the PrecisionLender Platform that enables commercial and SMB relationship managers and treasury management officers to collaborate on pricing and structuring fee-based banking services, including the modeling of pro forma revenue and expenses Data Studio • Managed and configured data environment that provides in depth analysis and reporting of a financial institution's commercial and SMB account portfolios • Enables commercial and SMB managers to assess performance trends as well as identify cross-sales and other opportunities for improvement Andi® • Configurable banking copilot powered by AI and machine learning which accompanies the relationship manager throughout the commercial and SMB loan structuring, negotiating and pricing process • Provides recommendations along the way leveraging the real-time analysis being performed by the PrecisionLender Platform and one of the industry's largest commercial banking data sets 15 Table of Contents Cloud Lending Solutions Our Q2 CL digital lending platform is a cloud-based, end-to-end lending solution that allows financial institutions, FinTechs and Alt-FIs to automate and digitize their lending activities, supporting digital lending applications, scoring, underwriting, servicing and collections for multiple assets classes.
We believe we are well positioned to connect and serve financial institutions, FinTechs and other financial services providers, including Brands, as they transform the ways in which they engage, either independently or in partnership, with End Users globally: • Our purpose-built digital banking platform leads the RCFI digital banking market: We built our digital banking platform to address unique challenges that financial institutions face in providing digital banking services.
We believe we are well positioned to connect and serve financial institutions, FinTechs and other financial services providers as they transform the ways in which they engage, either independently or in partnership, with End Users globally: • Our purpose-built digital banking platform leads the RCFI digital banking market: We built our award winning digital banking platform to address unique challenges that financial institutions face in providing digital banking services.
Our integrated, end-to-end collection of solutions includes retail, small business and commercial banking, regulatory and compliance, digital lending, relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others.
Our integrated, end-to-end collection of solutions includes retail, SMB and commercial banking, regulatory and compliance, digital lending and relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others.
Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 24 Table of Contents
During 2022, we were fortunate to bring awareness to a variety of important community programs supporting a range of needs, including The Trevor Project which operates the world's largest suicide prevention and crisis intervention organization for LGBTQ youth, and Homes for our Troops, which builds homes for U.S. veterans in need.
During 2023, we were fortunate to bring awareness to a variety of important community programs supporting a range of needs, including The Trevor Project which operates the world's largest suicide prevention and crisis intervention organization for LGBTQIA+ youth, and Homes for our Troops, which builds homes for U.S. veterans in need.
Our SaaS delivery model is also designed to reduce the cost and complexity of implementing, maintaining and enhancing the digital services and solutions our customers provide to their End Users. 5 Table of Contents The effective delivery and management of secure and advanced digital solutions in the complex and heavily regulated financial services industry requires significant resources, personnel and expertise.
Our SaaS delivery model is also designed to reduce the cost and complexity of implementing, maintaining and enhancing the digital services and solutions our customers provide to their End Users. The effective delivery and management of advanced digital solutions in the complex and heavily regulated financial services industry requires significant resources, personnel and expertise.
Based on our estimate of the number of target providers of digital lending services and our internal assumptions as to the number of End Users they serve and the prices for our solutions, we believe that the market for our digital lending solutions, including the borrower portal, origination, underwriting, servicing, collections, actionable insights, coaching, negotiation, pricing and sales enablement modules, is greater than $4.0 billion.
Based on our estimate of the number of target customers of digital lending and relationship pricing services and our internal assumptions as to the number of End Users they serve and the prices for our solutions, we believe that the market for our digital lending and relationship pricing solutions, including the borrower portal, origination, underwriting, servicing, collections, actionable insights, coaching, negotiation, relationship pricing and data-driven sales enablement modules, is greater than $4.0 billion.
Aging or increasingly complex solutions can create the following challenges for financial services providers: • integrating applications and systems from multiple vendors may increase costs and time-to-market; • managing relationships with multiple vendors can be time consuming and require a greater investment in business development and support resources; • building, maintaining and upgrading regulatory-compliant and secure solutions and infrastructure can be expensive and time-consuming and require special expertise that can be hard to find and retain; • operating, supporting and upgrading systems from multiple vendors can be difficult, costly and less secure and limit the ability to provide a unified End-User experience or comprehensive view of End-User behavior; • partnering between financial institutions and other financial services providers and innovating and delivering new solutions can be difficult and cost-prohibitive when integration with dated legacy infrastructure is required; and • training End Users and internal personnel on the use of different point systems can be challenging, time-consuming and costly.
Aging or increasingly complex solutions can create the following challenges for financial services providers: • integrating applications and systems from multiple vendors may increase costs and time-to-market; • managing relationships with multiple vendors can be time consuming and require a greater investment in business development and support resources; • building, maintaining and upgrading regulatory-compliant solutions and infrastructure can be expensive and time-consuming and require special expertise that can be hard to find and retain; • operating, supporting and upgrading systems from multiple vendors can be difficult, costly and less secure and limit the ability to provide a unified End-User experience or comprehensive view of End-User behavior; • partnering between financial institutions and other financial services providers and innovating and delivering new solutions can be difficult and cost-prohibitive when integration with dated legacy infrastructure is required; and • training End Users and internal personnel on the use of different point systems can be challenging, time-consuming and costly. 7 Table of Contents The use of multiple point solutions for digital financial services can require End Users to maintain different login credentials across digital channels and manage different systems.
The structure and terms of our lending arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements.
The structure and terms of our digital lending and relationship pricing arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements.
We believe the frequency and ease of these interactions can strengthen the relationships between End Users and our customers and help our customers better serve their End Users through a more comprehensive understanding of their behavior and activities.
We believe the frequency and ease of these interactions can strengthen the relationships between End Users and our customers and help our customers better serve their End Users through a more 9 Table of Contents comprehensive understanding of their behavior and activities.
Our customers and prospects are subject to extensive and complex regulations and oversight by federal, state and other regulatory authorities. These laws and regulations are constantly evolving and affect the conduct of our customers' operations and, as a result, our business.
Our customers and prospects are subject to extensive and complex regulations and oversight by regulatory authorities. These laws and regulations are constantly evolving and affect the conduct of our customers' operations and, as a result, our business.
The CL digital lending platform allows financial institutions, FinTechs and Alt-FIs to originate and service a wide range of loan types including consumer, commercial, small business and marketplace, or peer-to-peer.
The CL digital lending platform allows financial institutions, FinTechs and Alt-FIs to originate and service a wide range of loan types including consumer, commercial, SMB and marketplace, or peer-to-peer.
Our solutions and our data center infrastructure and resources are designed to comply with the stringent security and technical regulations applicable to financial institutions and financial services providers and to safeguard our customers' data and that of their End Users.
Our solutions are designed to comply with the stringent security and technical regulations applicable to financial institutions and financial services providers and to safeguard our customers' data and that of their End Users.
As of December 31, 2022, we had more than 1,200 financial institution customers using one or more of our solutions, including more than 40% of the top 100 U.S. Banks and more than 40% of the top 100 U.S. Credit Unions, based on total assets.
As of December 31, 2023, we had more than 1,300 financial institution customers using one or more of our solutions, including more than 40% of the top 100 U.S. Banks and more than 40% of the top 100 U.S. Credit Unions, based on total assets.
These laws and regulations have existed for decades, are extremely complex, constantly evolving, and require financial institutions to implement and maintain complex and costly operating policies, procedures and technical infrastructure to protect End Users, their deposits and their personal information.
These laws and regulations have existed for decades, are extremely complex, constantly evolving, 6 Table of Contents and require financial institutions to implement and maintain complex and costly operating policies, procedures and technical infrastructure to protect End Users, their deposits and their personal information.
As of December 31, 2022, we had more than 1,200 financial institution customers using one or more of our solutions, including more than 40% of the top 100 U.S. Banks and more than 40% of the top 100 U.S. Credit Unions, based on total assets.
As of December 31, 2023, we had more than 1,300 financial institution customers using one or more of our solutions, including more than 40% of the top 100 U.S. Banks and more than 40% of the top 100 U.S. Credit Unions, based on total assets.
We have a strong employee value proposition that leverages our mission-driven culture, collaborative working environment, competitive pay structures and exciting growth opportunities to attract talent. We are proud that for fiscal 2022, over 25% of our requisitions were filled internally, utilizing our strong internal talent pipeline, in addition to building the external talent relationships needed to support our company strategy.
To attract talent, we have a strong employee value proposition that leverages our mission-driven culture, collaborative working environment, competitive pay structures and growth opportunities. We are proud that for fiscal year 2023, over 20% of our requisitions were filled internally, utilizing our strong internal talent pipeline, in addition to building the external talent relationships needed to support our company strategy.
Following an examination, our financial institutions customers may request an executive summary of the examination through their lead examination agency. The Dodd-Frank Act granted the Consumer Financial Protection Bureau, or CFPB, authority to promulgate rules and interpret certain federal consumer financial protection laws, some of which apply to the solutions we offer.
Following an examination, our financial institutions customers may request the open section of the report of examination through their lead examination agency. The Dodd-Frank Act granted the Consumer Financial Protection Bureau, or CFPB, authority to promulgate rules and interpret certain federal consumer financial protection laws, some of which apply to the solutions we offer.
We have rapidly grown through a combination of broad market acceptance of our award-winning solutions and relentless innovation, investment and acquisitions. Our portfolio of solutions now spans onboarding, banking and lending across the retail, small business and commercial segments.
We have rapidly grown through a combination of broad market acceptance of our award-winning solutions and relentless innovation, investment and acquisitions. Our portfolio of solutions now spans onboarding, digital banking and lending across the retail, SMB and commercial segments.
We believe Q2 Innovation Studio facilitates a mutually beneficial ecosystem of financial institutions, FinTechs and other digital solution providers, allowing them to partner, generate new revenue opportunities, and enhance End User engagement in the new frontier of financial services.
We believe Q2 Innovation Studio facilitates a mutually beneficial ecosystem of financial institutions, FinTechs and other digital solution providers, allowing them to partner, generate new revenue opportunities, and enhance End User engagement.
End Users, spanning retail, small business and commercial, expect to transact and engage digitally with financial services providers anytime, anywhere and on any device, and seamlessly across devices.
End Users, spanning retail, SMB and commercial, expect to transact and engage digitally with financial services providers anytime, anywhere and on any device, and seamlessly across devices.
We have deep domain expertise in developing and delivering secure, advanced digital solutions designed to help our customers and technology partners compete in the complex and heavily regulated financial services industry. Over 18 years ago, Q2 began by providing digital banking solutions to regional and community financial institutions.
We have deep domain expertise in developing and delivering advanced digital solutions designed to help our customers and technology partners compete in the complex and heavily regulated financial services industry. Over 19 years ago, Q2 began by providing digital banking solutions to regional and community financial institutions, or RCFIs.
We had total revenues of $565.7 million, $498.7 million and $402.8 million in 2022, 2021 and 2020, respectively. We have invested, and intend to continue to invest, to grow our business by expanding our sales and marketing activities, adding delivery and support resources aligned with our growth, developing and acquiring new solutions and enhancing our existing solutions and technical infrastructure.
We had total revenues of $624.6 million, $565.7 million and $498.7 million in 2023, 2022 and 2021, respectively. We have invested, and intend to continue to invest, to grow our business by adding delivery and support resources aligned with our growth, developing and acquiring new solutions, enhancing our existing solutions and technical infrastructure and expanding our sales and marketing activities.
Our integrated, end-to-end collection of services and experiences now includes retail, small business and commercial banking, regulatory and compliance, digital lending, relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions. • Selectively pursue acquisitions and strategic investments: In addition to continuing to develop our solutions organically, we regularly evaluate strategic opportunities, such as our acquisitions of Centrix, Social Money, Unbill, Cloud Lending, Gro, PrecisionLender, ClickSWITCH and Sensibill.
Our integrated, end-to-end collection of solutions includes retail, SMB and commercial banking, regulatory and compliance, digital lending and relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others. • Selectively pursue acquisitions and strategic investments: In addition to continuing to develop our solutions organically, we regularly evaluate strategic opportunities, such as our acquisitions of Centrix, Social Money, Unbill, Cloud Lending, Gro, PrecisionLender, ClickSWITCH and Sensibill.
We define RCFIs as federally-insured banks and credit unions with less than $100 billion in assets, which according to data compiled by BauerFinancial as of September 30, 2022, consisted of approximately 9,599 financial institutions with combined assets of $8.9 trillion, representing approximately 35% of the aggregate assets held by the 9,635 total federally-insured financial institutions.
We define RCFIs as federally-insured banks and credit unions with less than $100 billion in assets, which according to data compiled by BauerFinancial as of September 30, 2023, consisted of approximately 9,301 financial institutions with combined assets of $8.9 trillion, representing approximately 35% of the aggregate assets held by the 9,334 total federally-insured financial institutions.
We believe our deep domain experience as a leading provider of digital banking solutions positions us well to provide new, innovative digital banking and other financial services solutions to address the new frontier in financial services. • We have acquired and developed solutions to better serve our financial institution customers and a broader set of global financial service providers including FinTechs, Alt-FIs and Brands: Over the past several years, we have expanded our portfolio to include offerings such as digital lending, Q2 Innovation Studio, Helix, digital account opening, account switching, risk management, data-driven sales enablement, spending insights and portfolio management solutions.
We believe our deep domain experience as a leading provider of digital banking solutions positions us well to provide new, innovative digital banking and other financial services solutions to address the evolving needs and challenges within the financial services industry. • We have acquired and developed solutions to better serve our financial institution customers and a broader set of global financial service providers including FinTechs and Alt-FIs: Over the past several years, we have expanded our portfolio to include offerings such as digital lending and relationship pricing, Q2 Innovation Studio, Helix, digital account opening, account switching, risk management, data-driven sales enablement, spending insights and portfolio management solutions.
Based on our estimates of the number of target financial institutions for our digital banking solutions and our internal assumptions as to the number and types of digital accounts they serve, the prices for our solutions and the number of transactions processed, we believe that the market for our digital banking platform, including retail, small business and commercial banking, as well as digital account opening, account switching, risk management and Q2 Innovation Studio is greater than $9.0 billion.
Based on our estimates of the number of target financial institutions for our digital banking solutions and our internal assumptions as to the number and types of digital accounts they serve, the prices for our solutions and the number of transactions processed, we believe that the market for our digital banking platform, including retail, SMB and commercial banking, regulatory and compliance, as well as digital account opening, account switching, risk management, portfolio management solutions and Q2 Innovation Studio is greater than $11.0 billion.
FinTechs and major innovative Brands recognize that incorporating banking into their strategy is an opportunity to leverage the trust that their customers place in them, driving deeper engagement with those customers all while generating additional revenue.
FinTechs and Alt-FIs recognize that incorporating banking into their strategy is an opportunity to leverage the trust that their customers place in them, driving deeper engagement with those customers all while generating additional revenue.
Helix Helix allows FinTechs and innovative Brands to incorporate banking services into their digital offerings, allowing them to easily and efficiently incorporate highly personalized financial experiences within their digital offerings and meet the stringent regulatory and technical requirements applicable to financial institutions and their banking services.
Helix Helix allows FinTechs, Alt-FIs and financial institutions to incorporate unique banking services into their digital offerings, allowing them to easily and efficiently incorporate highly personalized financial experiences within their digital offerings and meet the stringent regulatory and technical requirements applicable to financial institutions and their banking services.
The compliance of our solutions with these requirements depends on a variety of factors, including the functionality and design of our solutions, the classification of our customers, and the manner in which our customers and their End Users utilize our solutions.
The compliance of our solutions with these requirements depends on a variety of factors, including the functionality and design of our solutions, the classification of our customers, and the way our customers and their End Users utilize our solutions.
We believe that financial services providers are best served by a broad integrated portfolio of digital solutions that provide rapid, flexible and comprehensive integration with internal and third-party solutions allowing them to provide modern, intuitive digital financial services in a secure, regulatory-compliant manner.
We believe that financial services providers are best served by a broad integrated portfolio of digital solutions that provide rapid, flexible and comprehensive integration with internal and third-party solutions allowing them to provide modern, intuitive, advanced and regulatory-compliant digital banking and lending services.
Based on our estimates of the number of target financial institutions and Brands for our Helix solutions and our internal assumptions as to the number of End Users they serve, the prices for our solutions and the number of transactions processed, we believe the market for our Helix solutions is greater than $2.0 billion.
Based on our estimates of the number of target financial institutions and FinTechs for our Helix solutions and our internal assumptions as to the number of End Users they serve, the prices for our solutions and the number of transactions processed, we believe the market for our Helix solutions including open platform solutions and BaaS, is greater than $2.0 billion.
With respect to our digital banking platform, we have several point solution competitors, including NCR Corporation, or NCR, Alkami Technology, Inc. and Lumin Digital in the online, consumer and small business banking space and Finastra, ACI Worldwide, Inc. and Bottomline Technologies (de), Inc. in the commercial banking space.
With respect to our digital banking platform, we have several point solution competitors, including NCR Voyix Corporation, or NCR Voyix, Alkami Technology, Inc. and Apiture in the online, consumer and SMB banking space and Finastra, ACI Worldwide, Inc. and Bottomline Technologies (de), Inc. in the commercial banking space.
We incurred net losses of $109.0 million, $112.7 million and $137.6 million in 2022, 2021 and 2020, respectively. We were incorporated in March 2005 in the state of Delaware under the name CBG Holdings, Inc. We changed our name to Q2 Holdings, Inc. in March 2013.
We incurred net losses of $65.4 million, $109.0 million and $112.7 million in 2023, 2022 and 2021, respectively. We were incorporated in March 2005 in the state of Delaware under the name CBG Holdings, Inc. We changed our name to Q2 Holdings, Inc. in March 2013.
Our integrated, end-to-end collection of solutions and services includes retail, small business and commercial banking, regulatory and compliance, digital lending, relationship pricing, open platform solutions, BaaS, digital account opening, account switching, data-driven sales enablement, spending insights and portfolio management solutions.
Our integrated, end-to-end collection of solutions includes retail, SMB and commercial banking, regulatory and compliance, digital lending and relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others.
As a result, our customers can easily scale the use of our solutions with their needs as they add End Users and expand the digital services and solutions they offer. • Regulatory compliance: Our solutions leverage our deep domain expertise and the significant investments we have made in the design and development of our data center architecture and other technical infrastructure, including public cloud services, to meet the stringent security and technical requirements on financial institutions and financial services providers.
As a result, our customers can easily scale the use of our solutions with their needs as they add End Users and expand the digital services and solutions they offer. • Regulatory compliance: Our solutions leverage our deep domain expertise and the significant investments we have made in the design and development of our technology infrastructure to meet the stringent security and technical requirements of financial institutions and financial services providers.
We believe the principal competitive factors for why customers choose our solutions in the financial services markets we serve include the following: • alignment with the missions of our customers; • ability to provide a single platform for consumer and commercial End Users; • ability to provide a comprehensive portfolio of products of integrated end-to-end solutions for both account holders and borrowers; • breadth and depth of product portfolio addressing numerous mission critical applications for our customers; • full-feature functionality across digital channels; • ability to integrate targeted offers for End Users across digital channels; • ability to support financial institutions in acquiring deposits with open API technologies; • SaaS delivery and pricing model; 19 Table of Contents • ability to support both internal and external developers to quickly integrate with third-party applications and systems utilizing an SDK; • design of the End-User experience, including modern, intuitive and touch-centric features; • configurability and branding capabilities for customers; • familiarity of workflows and terminology and feature-on-demand functionality; • integrated multi-layered security and compliance of solutions with regulatory requirements; • quality of implementation, integration and support services; • domain expertise and innovation in financial services technology; • ability to innovate and respond to customer needs rapidly; • rate of development, deployment and enhancement of solutions; and • ability to collect and utilize data generated by our solutions to deliver insights to our customers.
We believe the principal competitive factors for why customers choose our solutions in the financial services markets we serve include the following: • alignment with the missions of our customers; • ability to provide a single platform for consumer, SMB and commercial End Users; • ability to provide a comprehensive portfolio of products of integrated end-to-end solutions for both account holders and borrowers; • breadth and depth of product portfolio addressing numerous mission critical applications for our customers; • full-feature functionality across digital channels; • ability to integrate targeted offers for End Users across digital channels; • ability to support financial institutions in acquiring deposits with open API technologies; • SaaS delivery and pricing model; • ability to support both internal and external developers to quickly integrate with third-party applications and systems utilizing an SDK; • design of the End-User experience, including modern, intuitive and touch-centric features; • configurability and branding capabilities for customers; • familiarity of workflows and terminology and feature-on-demand functionality; • integrated multi-layered security and compliance of solutions with regulatory requirements; • quality of implementation, integration and support services; • domain expertise and innovation in financial services technology; • ability to innovate and respond to customer needs rapidly; • breadth of integrations to third-party financial services; • rate of development, deployment and enhancement of solutions; and • ability to collect and utilize data generated by our solutions to deliver insights to our customers. 19 Table of Contents We believe that we compete favorably with respect to these factors within the financial institution and other financial services providers markets we serve, but we expect competition to continue and increase as existing competitors continue to evolve their offerings and as new companies enter our market.
We emphasize individual and team development planning as part of our annual goal-setting process. We believe leading our employees is one of the greatest acts of trust we can show to our managers, and accordingly all managers go through training to enable them to effectively perform as leaders.
We emphasize individual and team development planning as part of our annual goal-setting process. In 2023, our team members completed over 110,000 hours of training. We believe leading our employees is one of the greatest acts of trust we can show to our managers, and accordingly all managers go through training to enable them to effectively perform as leaders.
This convergence of factors and interdependency between financial institutions and other financial service providers represents a new frontier in financial services in which financial institutions, FinTechs, and Brands will have new roles and interdependencies, and will require new technology, new partnerships and new business models.
This convergence of factors and interdependency between financial institutions and other financial service providers represents a dynamic landscape in financial services in which financial institutions, FinTechs, and Alt-FIs will have new roles and interdependencies, and will require new technology, new partnerships and new business models.
The PrecisionLender platform user experience is enhanced by Andi®, a digital enterprise coach powered by machine learning and one of the industry's largest commercial banking data sets.
The PrecisionLender platform user experience is enhanced by Andi®, a banking copilot powered by AI and machine learning and one of the industry's largest commercial banking data sets.
We consider our current relationship with our employees to be good. None of our employees are represented by a labor union or are a party to a collective bargaining agreement. At Q2, we view our people and culture as our greatest asset. For more than 18 years, Q2 has been recognized and defined by our mission-driven culture.
We consider our current relationship with our employees to be good. None of our employees are represented by a labor union nor are a party to a collective bargaining agreement. At Q2, we are as passionate about our people as we are about our mission. For more than 19 years, Q2 has been recognized and defined by our mission-driven culture.
The examinations cover a wide variety of subjects, including our management, acquisition and development activities, support and delivery, IT audits, cybersecurity, as well as our disaster preparedness and business recovery planning. The regulators that make up the FFIEC have broad supervisory authority to remedy any shortcomings identified in an examination.
The examinations cover a wide variety of subjects, including our management, acquisition and development activities, support and delivery, information technology audits, cybersecurity, as well as our disaster preparedness and business recovery planning. The FFIEC has broad supervisory authority to remedy any shortcomings identified in an examination.
Our solutions include a broad and deep portfolio of digital banking solutions; lending solutions; an open technology platform, the Q2 Innovation Studio, which is a portfolio of technologies and programs which can be leveraged to design, develop, and distribute innovative products, services, features, and integrations by enabling a partnership ecosystem on Q2's digital banking platform; and Helix, a comprehensive banking as a service, or BaaS, solution, which enables innovative companies to integrate banking products and services into their offerings.
Our solutions include a broad and deep portfolio of digital banking solutions; digital lending and relationship pricing solutions; an open technology platform, the Q2 Innovation Studio, which is a portfolio of technologies and programs which can be leveraged to design, develop, and distribute innovative products, services, features, and integrations by enabling a partnership ecosystem on Q2's digital banking platform; and Helix, a comprehensive banking as a service, or BaaS, solution which also serves as a cloud-native core, both of which enable innovative companies and financial institutions to integrate unique banking products and services into their offerings.
Talent Acquisition We work diligently to attract the best talent from a diverse range of sources to meet the current and future demands of our business. We have established relationships with world-class universities, including historically black colleges and universities, or HBCUs, professional associations and industry groups to proactively attract talent.
Talent Acquisition We work diligently to attract great talent from a diverse range of sources to meet the current and future demands of our business. We have established relationships with world-class universities, professional associations and industry groups to proactively attract talent.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur principal risks include risks associated with: • our ability to manage our rapid growth; • the challenging macroeconomic environment, including its impact on our customers' purchasing decisions on products and services which are more discretionary in nature and the related demand for our solutions relative to our expectations; • the length, cost and unpredictability of our sales cycle; • the development of and changes to the market for our solutions compared to our expectations; • our ability to attract new customers and expand and renew existing customer relationships; • focusing on the financial services industry and any geographies where we have customer concentration; • managing challenges and costs associated with the implementation of a higher volume of or more complex configurations of our solutions; • customer acceptance of and satisfaction with our existing and new solutions; • the strength of our brand and reputation; • intense competition in the markets we serve and challenges we face as we enter new markets or new sections of existing markets; • integration of our solutions with and reliance by our solutions on third-party systems or services; • security and privacy breaches and defects or errors in our solutions; 25 Table of Contents • defects or errors in our solutions, including failures associated with payment transactions; • defects or failures in third-party services or solutions; • customer training and customer support; • evolving technological requirements and enhancements and additions to our solution offerings; • our sales and marketing capabilities, including partner relationships; • dependency on our management team and other key employees and recruiting and retaining talent; • increased costs associated with managing growth and the challenges associated with labor shortages, turnover, labor cost increases and extreme competition for talent; • the COVID-19 pandemic and its residual impact; • international operations; • mergers and acquisitions; • our convertible debt obligations and our ability to secure sufficient additional financing when desired or needed on favorable terms; • our revenue recognition method and the relative impacts of changes in subscription rates on implementation costs; • quarterly fluctuations in our operating results relative to our expectations and guidance and the accuracy of our forecasts and the market data we use; • our history of net operating losses and our ability to utilize our net operating loss carryforwards; • the unpredictability of customer subscription renewals or adoption; • our profit margins and the unpredictability of End-User adoption and usage, and customer implementation and support requirements; • the reliability of our forecasting; • our ability to utilize our net operating loss carry forwards; • sales taxes on our solutions; • changes in financial accounting standards or practices; • maintaining proper and effective internal controls and producing accurate and timely financial statements; • regulations applicable to us, our customers and our solutions, including evolving regulation of AI, machine learning and the receipt, collection, storage, processing and transfer of data, and the impacts of any violation of these regulations; • litigation or threats of litigation; • protecting our intellectual property; • "open source" software in our solutions; • risks associated with environmental, social and governance, or ESG, disclosures and evolving ESG disclosure requirements; • expenses and administrative burdens as a public company; • the dilutive effects of future sales, or anticipation of future sales, of our common stock; • unfavorable or misleading research by industry analysts; • our stock price volatility and historical policy of no dividends; • anti-takeover provisions in our charter documents and Delaware law; 26 Table of Contents • our ability to obtain additional financing and dilution to our stockholders resulting from raising capital or using equity for acquisitions; and • our convertible notes and related hedge, warrant and capped call transactions and the related accounting treatment Risks Related to our Operations, Industry and the Markets We Serve We have experienced rapid growth in recent periods and if we fail to manage our growth effectively or experience a decline in our growth rate, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges, and our financial performance may be adversely affected.
Biggest changeOur principal risks include risks associated with: • the challenging macroeconomic environment and challenges in the financial services industry, including impacts on our customers' purchasing decisions on products and services and the related demand for our solutions relative to our expectations; • focusing on the financial services industry, and particular customer segments therein, and any geographies where we have general customer concentration and the potential for any economic downturn or consolidation in such industry, segments or geographies to adversely affect our business; • our ability to manage our growth; • the length, cost and unpredictability of our sales cycle; • the development of our solutions and changes to the market for our solutions compared to our expectations; • our ability to attract new customers and expand and renew existing customer relationships; • managing challenges and costs associated with the implementation of a higher volume of or more complex configurations of our solutions; • customer acceptance of and satisfaction with our existing and new solutions; • the strength of our brand and reputation; • intense competition in the markets we serve and challenges we face as we enter new markets or new sections of existing markets; • integration of our solutions with and reliance by our solutions on third-party systems or services; • security and privacy breaches involving our solutions; • defects or errors in our solutions, including failures associated with transaction processing or interest, principal or balance calculations; • defects, failures or interruptions in third-party services or solutions, including data centers and third-party hosting services; • customer training and customer support; • evolving technological requirements, enhancements and additions to our solution offerings, including artificial intelligence; • our sales and marketing capabilities, including partner relationships; • dependency on our management team and other key employees and recruiting and retaining talent; • increased costs associated with managing growth and the challenges associated with labor shortages, turnover, labor cost increases and competition for talent; • international operations; • mergers and acquisitions or strategic investments; • our revenue recognition method and the relative impacts of changes in subscription rates on implementation costs; • quarterly fluctuations in our operating results relative to our expectations and guidance and the accuracy of our forecasts and the market data we use; • our history of net operating losses and potential limitations on our ability to utilize our net operating loss carryforwards; 25 Table of Contents • the unpredictability of customer subscription renewals or solution adoption; • our profit margins and the unpredictability of End-User adoption and usage, and customer implementation and support requirements; • the reliability of our forecasting; • sales taxes on our solutions; • changes in financial accounting standards or practices; • maintaining proper and effective internal controls and producing accurate and timely financial statements; • regulations applicable to us, our customers and our solutions, including evolving regulation of AI, machine learning and the receipt, collection, storage, processing and transfer of data, and the impacts of any violation of these regulations; • litigation or threats of litigation; • protecting our intellectual property; • "open-source" software in our solutions; • risks associated with environmental, social and governance, or ESG, disclosures and evolving ESG disclosure requirements; • expenses and administrative burdens as a public company; • the dilutive effects of future sales, or anticipation of future sales, of our common stock and the resulting impact on the price of our common stock; • unfavorable or misleading research by industry analysts; • our stock price volatility and historical policy of no dividends; • anti-takeover provisions in our charter documents and Delaware law; • our convertible debt obligations and our ability to secure sufficient additional financing when desired or needed on favorable terms; • our ability to obtain additional financing and dilution to our stockholders resulting from raising capital or using equity for acquisitions; and • our convertible notes and related capped call transactions and the related accounting treatment.
Additionally, there is an increased risk that we may experience cybersecurity-related events such phishing attacks and other security challenges as a result of some of our employees and our service providers working remotely from non-corporate managed networks.
Additionally, there is an increased risk that we may experience cybersecurity-related events, such as phishing attacks, and other security challenges as a result of some of our employees and our service providers working remotely from non-corporate managed networks.
Increased risks associated with cyberattacks, data and privacy breaches and breaches of security measures within our solutions, systems and infrastructure or the products, systems and infrastructure of third parties upon which we rely and the resultant costs and liabilities may cause failure or inability to meet our customers' expectations with respect to security and confidentiality and could harm our business and seriously damage our reputation and affect our ability to retain customers and attract new business.
Increased risks associated with cyberattacks, data and privacy breaches and breaches of security measures within our solutions, systems and infrastructure or the products, systems and infrastructure of our customers or third parties upon which we rely and the resultant costs and liabilities may cause failure or inability to meet our customers' expectations with respect to security and confidentiality and could harm our business and seriously damage our reputation and affect our ability to retain customers and attract new business.
We generally recognize revenues monthly over the terms of our customer agreements. The initial term of our digital banking platform customer agreements averages over five years, although it varies by customer. As a result, the substantial majority of the revenues we report in each quarter are related to agreements entered into during previous quarters.
We generally recognize revenues monthly over the terms of our customer agreements. The initial term of our digital banking platform agreements averages over five years, although it varies by customer. As a result, the substantial majority of the revenues we report in each quarter are related to agreements entered into during previous quarters.
We do not collect sales or other similar taxes in other states or jurisdictions, and some jurisdictions do not apply sales or similar taxes to certain solutions. State, local and foreign taxing jurisdictions have differing rules and regulations governing sales and other taxes, and these rules and regulations are subject to varying interpretations that may change over time.
We do not collect sales or other similar taxes in certain states and other jurisdictions, and some jurisdictions do not apply sales or similar taxes to certain solutions. State, local and foreign taxing jurisdictions have differing rules and regulations governing sales and other taxes, and these rules and regulations are subject to varying interpretations that may change over time.
We currently use in our solutions, and may use in the future, software that is licensed under "open source," "free" or other similar licenses where the licensed software is made available to the general public on an "as-is" basis under the terms of a specific non-negotiable license.
We currently, and may in the future, use in our solutions software that is licensed under "open-source," "free" or other similar licenses where the licensed software is made available to the general public on an "as-is" basis under the terms of a specific non-negotiable license.
The Capped Calls are expected to offset the potential dilution and/or offset any cash payments we are required to make in excess of the principal amount of converted 2025 Notes or 2026 Notes, as a result of conversion of the 2025 Notes or 2026 Notes, with such offset subject to a cap.
The Capped Calls are expected to offset the potential dilution and/or offset any cash payments we are required to make in excess of the principal amount of converted 2026 Notes or 2025 Notes, as a result of conversion of the 2026 Notes or 2025 Notes, with such offset subject to a cap.
In connection with establishing their initial hedges of the Capped Calls, the counterparties or their respective affiliates purchased shares of our common stock or entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the 2025 Notes and 2026 Notes.
In connection with establishing their initial hedges of the Capped Calls, the counterparties or their respective affiliates purchased shares of our common stock or entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the 2026 Notes and 2025 Notes.
The counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2025 Notes and 2026 Notes, and are likely to do so during any observation period related to a conversion of the 2025 Notes or 2026 Notes or following any repurchase of 2025 Notes or 2026 Notes by us.
The counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2026 Notes and 2025 Notes, and are likely to do so during any observation period related to a conversion of the 2026 Notes or 2025 Notes or following any repurchase of 2026 Notes or 2025 Notes by us.
If we lose the services of one or more of our Internet-hosting or bandwidth providers for any reason or if their services are disrupted, for example due to viruses or denial of service or other attacks on their systems, or due to human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes, pandemics or similar catastrophic events, we could experience disruption in our ability to offer our solutions and adverse perception of our solutions' reliability, or we could be required to retain the services of replacement providers, which could increase our operating costs and harm our business and reputation.
If we lose the services of one or more of our Internet service or bandwidth providers for any reason or if their services are disrupted, for example due to viruses or denial of service or other attacks on their systems, or due to human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes, pandemics or similar catastrophic events, we could experience disruption in our ability to offer our solutions and adverse perception of our solutions' reliability, or we could be required to retain the services of replacement providers, which could increase our operating costs and harm our business and reputation.
Our indebtedness under our convertible notes may impair our ability to obtain additional financing in the future for general corporate purposes, including working capital, capital expenditures, potential acquisitions and strategic transactions, and a portion of our cash flows from operations may have to be dedicated to repaying the principal of the 2023 Notes in 2023, the principal of the 2026 Notes in 2026, and the principal of the 2025 Notes in 2025 or earlier if necessary.
Our indebtedness under our convertible notes may impair our ability to obtain additional financing in the future for general corporate purposes, including working capital, capital expenditures, potential acquisitions and strategic transactions, and a portion of our cash flows from operations may have to be dedicated to repaying the principal of the 2026 Notes in 2026 and the principal of the 2025 Notes in 2025 or earlier if necessary.
Our certificate of incorporation and bylaws: 51 Table of Contents • authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to help defend against a takeover attempt; • require that directors only be removed from office for cause and only upon a supermajority stockholder vote; • provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders; • prevent stockholders from calling special meetings; • include advance notice procedures for stockholders to nominate candidates for election as directors or bring matters before an annual meeting of stockholders; • prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders; and • provide that certain litigation against us can only be brought in Delaware.
Our certificate of incorporation and bylaws: • authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to help defend against a takeover attempt; 52 Table of Contents • require that directors only be removed from office for cause and only upon a supermajority stockholder vote; • provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders; • prevent stockholders from calling special meetings; • include advance notice procedures for stockholders to nominate candidates for election as directors or bring matters before an annual meeting of stockholders; • prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders; and • provide that certain litigation against us can only be brought in Delaware.
These plans provide for sales to occur from time to time. If any of these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. Since our initial public offering, from time to time we have conducted registered offerings of our common stock.
These plans provide for sales to occur from time to time. If any of these shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. Since our initial public offering, from time to time we have conducted registered offerings of our common stock.
If one or more holders elect to convert the 2023 Notes, 2025 Notes or 2026 Notes, as applicable, we may elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), which would result in dilution to the holders of our common stock.
If one or more holders elect to convert the 2026 Notes or 2025 Notes, as applicable, we may elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), which would result in dilution to the holders of our common stock.
The costs of compliance with, the inability to determine whether a data breach has occurred within the time frame provided by, and other burdens imposed by, such laws and regulations may lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws.
The costs of compliance combined with the inability to determine whether a data breach has occurred within the time frame provided by, and other burdens imposed by, such laws and regulations may lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws.
There can be no assurance that, in the future, we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us. 52 Table of Contents In addition, holders of each series of our convertible notes will have the right to require us to repurchase all or a portion of their notes upon the occurrence of a fundamental change, as defined in the respective indentures, at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest.
There can be no assurance that, in the future, we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us. 53 Table of Contents In addition, holders of each series of our convertible notes will have the right to require us to repurchase all or a portion of their notes upon the occurrence of a fundamental change, as defined in the respective indentures, at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest.
New hires may require significant training and time before they become fully productive and may not become as productive as quickly as we anticipate. As a result, the cost of hiring and carrying new representatives cannot be offset by the revenues they produce for a significant period of time.
New hires may require significant training and time before they become fully productive and may not become as productive as quickly as we anticipate. As a result, the cost of hiring and carrying new representatives cannot be offset by the bookings and revenues they produce for a significant period of time.
Any such constraint on the growth in Internet and mobile usage could decrease its acceptance as a medium of communication and commerce or result in increased adoption of new modes of communication and commerce that may not be supported by our solutions.
Any such constraint on the growth in Internet usage could decrease its acceptance as a medium of communication and commerce or result in increased adoption of new modes of communication and commerce that may not be supported by our solutions.
Uncertain economic conditions may also adversely affect third parties with which we have entered into relationships and upon which we depend in order to grow our business, such as technology vendors and public cloud providers.
Uncertain economic and global conditions may also adversely affect third parties with which we have entered into relationships and upon which we depend in order to grow our business, such as technology vendors and public cloud providers.
In addition, our management and other personnel have been required to divert attention from operational and other business matters to devote substantial time to these public company requirements. 49 Table of Contents Furthermore, if we identify any issues in complying with public company reporting requirements (for example, if our financial systems prove inadequate or we or our auditors identify deficiencies in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions of us.
In addition, our management and other personnel have been required to divert attention from operational and other business matters to devote substantial time to these public company requirements. 50 Table of Contents Furthermore, if we identify any issues in complying with public company reporting requirements (for example, if our financial systems prove inadequate or we or our auditors identify deficiencies in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions of us.
Our future operations may not generate sufficient cash to enable us to repay our debt, including the 2023 Notes, 2025 Notes or 2026 Notes. If we fail to make a payment on our debt, we could be in default on such debt.
Our future operations may not generate sufficient cash to enable us to repay our debt, including the 2026 Notes or 2025 Notes. If we fail to make a payment on our debt, we could be in default on such debt.
Accounting for revenues from sales of our solutions is particularly complex, is often the subject of intense scrutiny by the SEC and will evolve as the Financial Accounting Standards Board, or FASB, continues to consider applicable accounting standards in this area. 43 Table of Contents If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors' views of us.
Accounting for revenues from sales of our solutions is particularly complex, is often the subject of intense scrutiny by the SEC and will evolve as the Financial Accounting Standards Board, or FASB, continues to consider applicable accounting standards in this area. 44 Table of Contents If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors' views of us.
A claim brought against us that is uninsured or underinsured could result in unanticipated costs and impact our liquidity, thereby reducing our operating results and impacting our financial condition, leading analysts and investors to reduce their confidence and expectations and reduce the trading price of our stock. 46 Table of Contents Lawsuits by third parties against us or our customers for alleged infringement of the third parties' proprietary rights or for other intellectual property related claims could result in significant expenses and harm our operating results and financial condition.
A claim brought against us that is uninsured or underinsured could result in unanticipated costs and impact our liquidity, thereby reducing our operating results and impacting our financial condition, leading analysts and investors to reduce their confidence and expectations and reduce the trading price of our stock. 47 Table of Contents Lawsuits by third parties against us or our customers for alleged infringement of the third parties' proprietary rights or for other intellectual property related claims could result in significant expenses and harm our operating results and financial condition.
In the event any of the conditional conversion features of the 2023 Notes, 2025 Notes or 2026 Notes is triggered, note holders will be entitled to convert their 2023 Notes, 2025 Notes or 2026 Notes, as applicable, at any time during specified periods at their option.
In the event any of the conditional conversion features of the 2026 Notes or 2025 Notes is triggered, note holders will be entitled to convert their 2026 Notes or 2025 Notes, as applicable, at any time during specified periods at their option.
In addition, if any such third-party providers experience an outage, our solutions integrated with such systems or services will not function properly or at all, and our customers may be dissatisfied with our solutions.
In addition, if any such third-party providers experience an outage, our solutions integrated with such systems or services may not function properly or at all, and our customers may be dissatisfied with our solutions.
Our employees may use certain technological tools and infrastructure that allow us to enhance productivity, such as AI-enhanced chat bot functionality, that can generate code or other content.
Our employees may use certain technological tools and infrastructure that allow us to enhance productivity, such as AI-enhanced chat bot functionality, which can generate code or other content.
If enacted or deemed applicable to us, such laws, rules or regulations could be imposed on our activities or our business thereby rendering our business or operations more costly, burdensome, less efficient or impossible, any of which could have a material adverse effect on our business, financial condition and operating results. 44 Table of Contents We are subject to various global data privacy and security regulations, which could result in additional costs and liabilities to us.
If enacted or deemed applicable to us, such laws, rules or regulations could be imposed on our activities or our business thereby rendering our business or operations more costly, burdensome, less efficient or impossible, any of which could have a material adverse effect on our business, financial condition and operating results. 45 Table of Contents We are subject to various global data privacy and security regulations, which could result in additional costs and liabilities to us.
As a result of using open source software subject to such licenses, we could be required to release our proprietary source code, pay damages, re-engineer our products, limit or discontinue sales or take other remedial action, any of which could adversely affect our business. 48 Table of Contents Our aspirations and commitments to ESG matters expose us to risks that could adversely affect our reputation and performance.
As a result of using open-source software subject to such licenses, we could be required to release our proprietary source code, pay damages, re-engineer our products, limit or discontinue sales or take other remedial action, any of which could adversely affect our business. 49 Table of Contents Our aspirations and commitments to ESG matters expose us to risks that could adversely affect our reputation and performance.
In addition to the other risks described in this report, factors that may affect our quarterly operating results or key operating measures include the following: • the addition or loss of customers, including through acquisitions, consolidations or failures; • the timing of large subscriptions and customer terminations, renewals or failures to renew; • the amount of use of our solutions in a period and the amount of any associated transactional revenues and expenses; • the amount and timing of professional service engagements and associated revenues and expenses; • budgeting cycles of our customers and changes in spending on solutions by our current or prospective customers; 40 Table of Contents • seasonal variations in sales of our solutions, which may be lower in the first half of the calendar year; • changes in the competitive dynamics of our industry, including consolidation among competitors, changes to pricing or the introduction of new products and services that limit demand for our solutions or cause customers to delay purchasing decisions; • the amount and timing of cash collections from our customers; • long or delayed implementation times for new customers, including larger customers, or other changes in the levels of customer support we provide; • the timing and predictability of sales of our solutions and the impact that the timing of bookings may have on our revenue and financial performance in a period; • the timing of customer payments and payment defaults by customers, including any buyouts by customers of the remaining term of their contracts with us in a lump sum payment that we would have otherwise recognized over the term of those contracts, and any costs associated with impairments of related contract assets; • the amount and timing of our operating costs and capital expenditures; • changes in tax rules or the impact of new accounting pronouncements; • general economic conditions that may adversely affect our customers' ability or willingness to purchase solutions, delay a prospective customer's purchasing decision, reduce our revenues from customers or affect renewal rates; • natural disasters or public health emergencies and their effect on the operations of us, our customers, our third-party providers and on the overall economy; • impairment charges related to long-lived assets; • unexpected expenses such as those related to non-recurring corporate transactions, litigation or other disputes, or changes in claim trends on our workers' compensation, unemployment, disability and medical benefit plans may negatively impact our operating costs; • the timing of stock awards to employees and related adverse financial statement impact of having to expense those stock awards over their vesting schedules; and • the amount and timing of costs associated with recruiting, hiring, training and integrating new employees, many of whom we hire in advance of anticipated needs.
In addition to the other risks described in this report, factors that may affect our quarterly operating results or key operating measures include the following: • the addition or loss of customers, including through acquisitions, consolidations or failures; • the timing of large subscriptions and customer terminations, renewals or failures to renew; • the amount of use of our solutions in a period and the amount of any associated transactional revenues and expenses; • the amount and timing of professional service engagements and associated revenues and expenses; • budgeting cycles of our customers and changes in spending on solutions by our current or prospective customers; • seasonal variations in sales of our solutions, which may be lower in the first half of the calendar year; • changes in the competitive dynamics of our industry, including consolidation among competitors, changes to pricing or the introduction of new products and services that limit demand for our solutions or cause customers to delay purchasing decisions; • the amount and timing of cash collections from our customers; • long or delayed implementation times for new customers, including larger customers with more complex requirements, or other changes in the levels of customer support we provide; • the timing and predictability of sales of our solutions and the impact that the timing of bookings may have on our revenue and financial performance in a period; • the timing of customer payments and payment defaults by customers, including any buyouts by customers of the remaining term of their contracts with us in a lump sum payment that we would have otherwise recognized over the term of those contracts, and any costs associated with impairments of related contract assets; • changes in actual customer usage or projected customer usage of our solutions; 41 Table of Contents • the amount and timing of our operating costs and capital expenditures; • changes in tax rules or the impact of new accounting pronouncements; • general economic conditions or conditions in the financial services industry that may adversely affect our customers' ability or willingness to purchase solutions, delay a prospective customer's purchasing decision, reduce our revenues from customers or affect renewal rates; • natural disasters or public health emergencies and their effect on the operations of us, our customers, our third-party providers and on the overall economy; • impairment charges related to long-lived assets; • unexpected expenses such as those related to non-recurring corporate transactions, litigation or other disputes, or changes in claim trends on our workers' compensation, unemployment, disability and medical benefit plans may negatively impact our operating costs; • the timing of stock awards to employees and related adverse financial statement impact of having to expense those stock awards over their vesting schedules; and • the amount and timing of costs associated with recruiting, hiring, training and integrating new employees, many of whom we hire in advance of anticipated needs.
This depends largely on the effectiveness of our marketing efforts, our ability to provide reliable solutions that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and use cases, and our ability to successfully differentiate our solutions and their capabilities from competitive products and services, which we may not be able to do effectively.
This depends largely on the effectiveness of our marketing efforts, our ability to provide reliable solutions that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to implement and support our solutions, our ability to continue to develop new functionality and use cases, and our ability to successfully differentiate our solutions and their capabilities from competitive products and services, which we may not be able to do effectively.
We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized uses of our intellectual property. 47 Table of Contents Despite our precautions, it may be possible for third parties to copy our solutions and use information that we regard as proprietary to create solutions and services that compete with ours.
We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized uses of our intellectual property. 48 Table of Contents Despite our precautions, it may be possible for third parties to copy our solutions and use information that we regard as proprietary to create solutions and services that compete with ours.
We also will have to anticipate the necessary expansion of our relationship management, implementation, customer service and other personnel to support our growth and achieve high levels of customer service and satisfaction, particularly as we sell to larger customers that have heightened levels of complexity in their hardware, software and network infrastructure needs and as we sell a broader range of solutions to a broader set of customers.
We also will have to anticipate the necessary expansion of our relationship management, implementation, customer service and other personnel to support our growth and maintain high levels of customer service and satisfaction, particularly as we sell to larger customers that have heightened levels of complexity in their hardware, software and network infrastructure needs and as we sell a broader range of solutions to a broader and larger set of customers.
If we are unable to devote sufficient time and resources to establish and train these partners or if we are unable to maintain successful relationships with them, we may lose sales opportunities and our revenues could suffer. 36 Table of Contents We rely on our management team and other key employees, and the loss of one or more key employees could harm our business.
If we are unable to devote sufficient time and resources to establish and train these partners or if we are unable to maintain successful relationships with them, we may lose sales opportunities and our revenues could suffer. 37 Table of Contents We rely on our management team and other key employees, and the loss of one or more key employees could harm our business.
Our sales process involves educating prospective customers and existing customers about the use, technical capabilities and benefits of our solutions. Prospective customers, especially larger financial services providers, often undertake a prolonged evaluation process, which typically involves not only our solutions, but also those of our competitors and lasts from six to nine months or longer.
Our sales process involves educating prospective customers and existing customers about the use, technical capabilities, implementation timelines and benefits of our solutions and services. Prospective customers, especially larger financial services providers, often undertake a prolonged evaluation process, which typically involves not only our solutions, but also those of our competitors and lasts from six to nine months or longer.
Additionally, we rely upon third parties' abilities to enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. We may be unable to effect changes to such third-party technologies, which may prevent us from rapidly responding to evolving customer requirements.
Additionally, we rely upon third parties' abilities to enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. We may be unable to influence changes to such third-party technologies, which may prevent us from rapidly responding to evolving customer requirements.
Accordingly, potential investors in our common stock are urged not to put undue reliance on such forecasts and market data. 42 Table of Contents We may not be able to utilize a significant portion of our net operating loss carryforwards, which could adversely affect our operating results and cash flows.
Accordingly, potential investors in our common stock are urged not to put undue reliance on such forecasts and market data. 43 Table of Contents We may not be able to utilize a significant portion of our net operating loss carryforwards, which could adversely affect our operating results and cash flows.
We may not achieve the anticipated benefits from our past acquisitions or any additional businesses we acquire due to a number of factors, including: • our inability to integrate, manage or benefit from acquired operations, technologies or services; • our inability to successfully sell and maintain the solutions of the acquired business; • unanticipated costs or liabilities associated with the acquisition, including the assumption of liabilities or commitments of the acquired business that were not disclosed to us or that exceeded our estimates; • difficulty integrating the technology, accounting systems, operations and personnel of the acquired business; • difficulties and additional expenses associated with supporting legacy solutions and hosting infrastructure of the acquired business; • uncertainty of entry into markets in which we have limited or no prior experience or in which competitors have stronger market positions; • difficulty converting the customers of the acquired business to our solutions and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company; • diversion of management's attention to other business concerns; • adverse effects to our existing business relationships with business partners and customers as a result of the acquisition; • use of resources that are needed in other parts of our business; • the use of a substantial portion of our cash that we may need to operate our business and which may limit our operational flexibility and ability to pursue additional strategic transactions; • the issuance of additional equity securities that would dilute the ownership interests of our stockholders; • incurrence of debt on terms unfavorable to us or that we are unable to repay; • incurrence of large charges or substantial liabilities; • our inability to apply and maintain internal standards, controls, procedures and policies with respect to the acquired businesses; 39 Table of Contents • difficulties retaining key employees of the acquired company or integrating diverse software codes or business culture; and • becoming subject to adverse tax consequences, substantial depreciation or deferred compensation charges.
Consequently, these transactions, even if undertaken and announced, may not close. 39 Table of Contents We may not achieve the anticipated benefits from our past acquisitions or any additional businesses we acquire due to a number of factors, including: • our inability to integrate, manage or benefit from acquired operations, technologies or services; • our inability to successfully sell and maintain the solutions of the acquired business; • unanticipated costs or liabilities associated with the acquisition, including the assumption of liabilities or commitments of the acquired business that were not disclosed to us or that exceeded our estimates; • difficulty integrating the technology, accounting systems, operations and personnel of the acquired business; • difficulties and additional expenses associated with supporting legacy solutions and hosting infrastructure of the acquired business; • uncertainty of entry into markets in which we have limited or no prior experience or in which competitors have stronger market positions; • difficulty converting the customers of the acquired business to our solutions and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company; • diversion of management's attention to other business concerns; • adverse effects to our existing business relationships with business partners and customers as a result of the acquisition or divestiture; • use of resources that are needed in other parts of our business; • the use of a substantial portion of our cash that we may need to operate our business and which may limit our operational flexibility and ability to pursue additional strategic transactions; • the issuance of additional equity securities that would dilute the ownership interests of our stockholders; • incurrence of debt on terms unfavorable to us or that we are unable to repay; • incurrence of large charges or substantial liabilities; • our inability to apply and maintain internal standards, controls, procedures and policies with respect to the acquired businesses; • difficulties retaining key employees of the acquired company or integrating diverse software codes or business culture; and • becoming subject to adverse tax consequences, substantial depreciation or deferred compensation charges.
To support our growth, we must continue to improve our management resources and our operational and financial controls and systems, and these improvements may increase our expenses more than anticipated and result in a more complex business, and our failure to timely and effectively implement these improvements could have an adverse effect on our operations and financial results.
To support our growth, we must continue to improve our management's resources and operational and financial controls and systems, and these improvements may increase our expenses more than anticipated and result in a more complex business, and our failure to timely and effectively implement these improvements could have an adverse effect on our operations and financial results.
Additionally , the price of our convertible notes and our common stock might be based on expectations of investors or securities analysts of future performance that are inconsistent with our actual growth opportunities or that we might fail to meet and, if our revenues or operating results fall below expectations, the price of our convertible notes and common stock could decline substantially.
Additionally , the price of our common stock might be based on expectations of investors or securities analysts of future performance that are inconsistent with our actual growth opportunities or that we might fail to meet and, if our revenues or operating results fall below expectations, the price of our common stock could decline substantially.
We cannot assure you that our current customers will renew or expand their use of our solutions. If we are unable to attract new customers or retain or attract new business from current customers, our business, financial condition and results of operations may be materially and adversely affected.
We cannot assure you that our current customers will renew or expand their use of our solutions. If we are unable to attract new customers or retain or attract new business from current customers or technology partners, our business, financial condition and results of operations may be materially and adversely affected.
Many of our competitors have significantly more financial, technical, marketing and other resources than we have, may devote greater resources to the promotion, sale and support of their systems than we can, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we have.
Some of our competitors have significantly more financial, technical, marketing and other resources than we have, may devote greater resources to the promotion, sale and support of their systems than we can, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we have.
Certain elements of our solutions process and store personally identifiable information, or PII, such as banking and personal information of our customers and their End Users, and we also may have access to PII during various stages of the implementation process or during the course of providing customer support.
Certain elements of our solutions process and store personally identifiable information, or PII, such as banking and personal information of our customers and their End Users, and we also regularly have access to PII during various stages of the implementation process or during the course of providing customer support.
If we have to make changes to our internal processes and solutions as a result of these regulatory changes, we could be required to invest substantial additional time and funds and divert time and resources from other corporate purposes to remedy any identified deficiency.
If we have to make changes to our internal processes and solutions as a result of these regulatory changes, we could be required to invest substantial ime and funds and divert time and resources from other corporate purposes to remedy any identified deficiency.
We may spend substantial time, effort and money on our sales and marketing efforts without any assurance that our efforts will produce any sales. It is also difficult to predict the level and timing of sales opportunities that come from our referral partners.
We may spend substantial time, effort and money on our sales and marketing efforts without any assurance that our efforts will produce any sales. It is also difficult to predict the level and timing of sales opportunities that come from our partners and resellers.
As a result, we regularly are subject to allegations and involved in disputes, either directly or on behalf of our customers, that our solutions and the underlying technology infringe the patent and other intellectual property rights of third parties.
As a result, we periodically are subject to allegations and involved in disputes, either directly or on behalf of our customers, that our solutions and the underlying technology infringe the patent and other intellectual property rights of third parties.
In addition, we may face increased competition in our existing markets as we enter new markets or sections of a market with larger or different customers and new solutions. Our industry has also experienced recent consolidation which we believe may continue.
In addition, we may face increased competition in our existing markets as we enter new markets or sections of a market with larger or different customers and new solutions. Our industry has also experienced recent consolidations which we believe may continue.
If sustained or repeated, these performance issues could reduce the attractiveness of our solutions to new and existing customers, cause us to lose customers, and lower renewal rates by existing customers, each of which could adversely affect our revenue and reputation.
If sustained or repeated, these performance issues could reduce the attractiveness of our solutions to new and existing customers, cause us to lose customers, and lower renewal rates for existing customers, each of which could adversely affect our revenue and reputation.
These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, operational disruption, spikes in customer usage and denial of service issues.
These problems may be caused by a variety of factors, including infrastructure changes, hardware failures, human or software errors, viruses, security attacks, fraud, operational disruption, spikes in customer usage and denial of service issues.
Risks Related to Our Convertible Notes We incurred indebtedness by issuing our 2023 Notes in 2018, our 2026 Notes in 2019, and our 2025 Notes in 2020, and our debt repayment obligations may adversely affect our financial condition and cash flows from operations in the future.
Risks Related to Our Convertible Notes We incurred indebtedness by issuing our 2026 Notes in 2019, and our 2025 Notes in 2020, and our debt repayment obligations may adversely affect our financial condition and cash flows from operations in the future.
Events affecting our customers' businesses have and may continue to occur during the sales cycle that could affect the size or timing of a purchase, contributing to more unpredictability in our business and operating results.
Events affecting our customers' businesses have and may continue to occur during the sales cycle that could impact the size or timing of a purchase, contributing to more unpredictability in our business and operating results.
We can provide no assurances as to the financial stability or viability of any option counterparty. In addition, the bond hedge, warrant and capped call transactions are complex, and they may not operate as planned. For example, the terms of each may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur.
We can provide no assurances as to the financial stability or viability of any option counterparty. In addition, the capped call transactions are complex, and they may not operate as planned. For example, the terms of each may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur.
In addition, many of our competitors expend more funds on research and development. We also may face competition from new companies entering our markets, which may include large established businesses that decide to develop, market or resell competitive solutions, acquire one of our competitors or form a strategic alliance with one of our competitors.
In addition, many of our competitors expend more funds on research and development. 30 Table of Contents We also may face competition from new companies entering our markets, which may include large established businesses that decide to develop, market or resell competitive solutions, acquire one of our competitors or form a strategic alliance with one of our competitors.
The occurrence of unanticipated events and development of evolving technologies often rapidly drives the adoption of legislation or regulation affecting the use, collection or other processing of data and manner in which we conduct our business. In the U.S., these include rules and regulations promulgated under the authority of the Federal Trade Commission, and state breach notification laws.
The occurrence of unanticipated events and development of evolving technologies often rapidly drives the adoption of legislation or regulation affecting the use, collection or other processing of data and the way we conduct our business. In the U.S., these include rules and regulations promulgated under the authority of the Federal Trade Commission, and state breach notification laws.
If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the market for our stock, and demand for our stock could decrease, which could cause our stock price or trading volume to decline. Our stock price has been and may continue to be highly volatile.
If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the market for our stock, and demand for our stock could decrease, which could cause our stock price or trading volume to decline. 51 Table of Contents Our stock price has been and may continue to be highly volatile.
We have completed, and may in the future evaluate and consider, potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets. We also may enter into relationships with other businesses to expand our solutions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies.
We have completed, and may in the future evaluate and consider, potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets. We also may enter into relationships with other businesses to expand our solutions, which could involve preferred or exclusive licenses and additional channels of distribution.
If we are unable to integrate with such third-party systems or services as a result of changes to or restricted access to the systems or services by such third parties during the terms of existing agreements with customers using such third-party systems or services, we may not be able to meet our contractual obligations to customers, which may result in disputes with customers and harm to our business.
If we are unable to integrate with such third-party systems or services because of changes to or restricted access to the systems or services by such third parties during the terms of existing agreements with customers using such third-party systems or services, we may not be able to meet our contractual obligations to customers, which may result in disputes with customers and harm to our business.
Although we or our customers may be able to switch to alternative technologies if a provider's systems or services were unreliable or if a provider was to limit such customer's access and utilization of its data or the provider's functionality, our business could nevertheless be harmed due to the risk that our customers could reduce their use of our solutions.
Although we or our customers may be able to switch to alternative technologies if a provider's systems or services were unreliable or if a provider was to limit customer access and utilization of its data or the provider's functionality, our business could nevertheless be harmed due to the risk that our customers could reduce their use of our solutions.
If we are unable to effectively manage our expansion into additional geographic markets, our financial condition and results of operations could be harmed. 38 Table of Contents In particular, we operate some of our research and development activities internationally and outsource a portion of the coding and testing of our products and product enhancements to contract development vendors.
If we are unable to effectively manage our expansion into additional geographic markets, our financial condition and results of operations could be harmed. In particular, we operate some of our research and development activities internationally and outsource a portion of the coding and testing of our products and product enhancements to contract development vendors.
These concerns or other considerations may cause financial institutions to choose not to adopt cloud-based solutions such as ours or to adopt alternative solutions, either of which would harm our operating results.
These concerns or other considerations may cause financial institutions to choose not to adopt cloud-based solutions such as ours or to adopt alternative solutions, either of which could harm our operating results.
Providing this training and support requires that our customer training and support personnel have financial services knowledge and expertise, which can make it difficult for us to hire qualified personnel and scale our training and support operations.
Providing this training and support requires that our customer training and support personnel have Q2 solutions and financial services knowledge and expertise, which can make it difficult for us to hire qualified personnel and scale our training and support operations.
These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. 50 Table of Contents If securities or industry analysts publish unfavorable or misleading research about our business, or cease coverage of our company, our stock price and trading volume could decline.
These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. If securities or industry analysts publish unfavorable or misleading research about our business, or cease coverage of our company, our stock price and trading volume could decline.
In addition, our increased focus on selling our solutions to larger customers and the increased breadth of our solution offerings and the types of customers we serve may result in greater uncertainty and variability in our business and sales results.
In addition, selling our solutions to larger customers and the increased breadth of our solution offerings and the types of customers we serve may result in greater uncertainty and variability in our business and sales results.
The option counterparties to our bond hedge, warrant and capped call transactions entered into in connection with the convertible notes are financial institutions, and we will be subject to the risk that they might default under these derivative transactions. Our exposure to the credit risk of these counterparties will not be secured by any collateral.
The option counterparties to our capped call transactions entered into in connection with the convertible notes are financial institutions, and we will be subject to the risk that they might default under these derivative transactions. Our exposure to the credit risk of these counterparties will not be secured by any collateral.
Security incidents can result in unauthorized access to, loss of or unauthorized disclosure of confidential information, litigation, indemnity obligations and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales, harm our business and result in increased volatility in our stock price.
Security incidents can result in unauthorized access to, loss of or unauthorized disclosure of confidential information, litigation, regulatory enforcement, fines, indemnity obligations and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales, harm our business and result in increased volatility in our stock price.
In addition, promoting and selling these new and enhanced solutions may require increasingly costly sales and marketing efforts, and if customers choose not to adopt these solutions, our business could suffer. 28 Table of Contents If we are unable to attract new customers, continue to broaden our existing customers' use of our solutions or renew existing customer relationships, our business, financial condition and results of operations could be materially and adversely affected.
In addition, promoting and selling new and enhanced solutions may require increasingly costly sales and marketing efforts, and if customers choose not to adopt these solutions, our business could suffer. 28 Table of Contents If we are unable to attract new customers, continue to broaden our existing customers' use of our solutions or renew existing relationships with customers or technology partners, our business, financial condition and results of operations could be materially and adversely affected.
We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business such as claims brought by our customers in connection with commercial or intellectual property disputes or employment claims made by our current or former employees.
We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business such as claims brought by our customers in connection with commercial or intellectual property disputes, employment claims made by our current or former employees, or commercial or intellectual property claims by our suppliers or service providers.
These include, but are not limited to: • fluctuations in currency exchange rates; • the complexity of, or changes in, foreign regulatory requirements; • the cost and complexity of bringing our solutions into compliance with foreign regulatory requirements, and risks of our solutions not being compliant; • difficulties in managing the staffing of international operations, including compliance with local labor and employment laws and regulations; • complexities implementing and enforcing cross-border information technology and security controls; • potentially adverse tax consequences, including the complexities of foreign value added tax systems, overlapping tax regimes, restrictions on the repatriation of earnings and changes in tax rates; • dependence on resellers and distributors to increase customer acquisition or drive localization efforts; • the burdens of complying with a wide variety of foreign laws and different legal standards, certain of which may be significantly more burdensome than those in place in the U.S.; • increased financial accounting and reporting burdens and complexities; • longer payment cycles and difficulties in collecting accounts receivable; • longer sales cycles; • political, social and economic instability abroad; • terrorist attacks and security concerns in general; • integrating personnel with diverse business backgrounds and organizational cultures; • difficulties entering new non-U.S. markets due to, among other things, consumer acceptance and business knowledge of these new markets; • constraints of remote working by employees; • reduced or varied protection for intellectual property rights in some countries; and • the risk of U.S. regulation of foreign operations.
These include, but are not limited to: • fluctuations in currency exchange rates; • the complexity of, or changes in, foreign regulatory requirements; • difficulties in managing the staffing of international operations, including compliance with local labor and employment laws and regulations; • complexities implementing and enforcing cross-border information technology and security controls; 38 Table of Contents • potentially adverse tax consequences, including the complexities of foreign value added tax systems, overlapping tax regimes, restrictions on the repatriation of earnings and changes in tax rates; • the cost and complexity of bringing our solutions into compliance with foreign regulatory requirements, and risks of our solutions not being compliant; • dependence on resellers and distributors to increase customer acquisition or drive localization efforts; • the burdens of complying with a wide variety of foreign laws and different legal standards, certain of which may be significantly more burdensome than those in place in the U.S.; • increased financial accounting and reporting burdens and complexities; • longer payment cycles and difficulties in collecting accounts receivable; • longer sales cycles; • political, social and economic instability abroad; • terrorist attacks and security concerns in general; • failure to recruit, onboard, build and retain a talented and engaged global workforce; • integrating personnel with diverse business backgrounds and organizational cultures; • difficulties entering new non-U.S. markets due to, among other things, consumer acceptance and business knowledge of these new markets; • constraints of remote working by employees; • reduced or varied protection for intellectual property rights in some countries; and • the risk of U.S. regulation of foreign operations.
We do not have formal arrangements with many of these third-party providers regarding our access to their APIs to enable these customer integrations. We also resell numerous third-party services and market integrations to a large number of third-party services, including third-party services and integrations offered through our Q2 Innovation Studio solution.
We do not have formal arrangements with many of these third-party providers regarding our access to their APIs to enable these customer integrations. We also resell numerous third-party services and market integrations to many third-party services, including services and integrations offered through our Q2 Innovation Studio solution.
Examples of such risks include: • the availability and cost of low or non-carbon based energy sources; • the evolving regulatory requirements affecting ESG standards or disclosures; • the availability of suppliers that can meet our sustainability, diversity and other ESG standards; • our ability to recruit, develop and retain diverse talent in our labor markets; and • the success of our organic growth and acquisitions.
Examples of such risks include: • the availability and cost of low or non-carbon-based energy sources; • the evolving regulatory requirements affecting ESG standards or disclosures; • the availability of suppliers that can meet our sustainability, diversity and other ESG standards; • our ability to recruit, develop and retain diverse talent in our labor markets; and • the success of our organic growth and acquisitions, dispositions or restructuring of our business operations.
If we were required to pay any significant amount of money in satisfaction of claims under these laws, or any similar laws enacted by other jurisdictions, or if we were forced to cease our business operations for any length of time as a result of our inability to comply fully with any of these laws, our business, operating results and financial condition could be adversely affected.
If we were required to pay any significant amount of money in satisfaction of claims under these laws, or any similar laws enacted by other jurisdictions, or if we were forced to cease our business operations for any length of time because of our inability to comply fully with any of these laws, our business, operating results and financial condition could be adversely affected.
Damage to our reputation could also reduce the value and effectiveness of our brand name and could reduce investor confidence in us and materially and adversely affect our business, financial condition and results of operations. 30 Table of Contents The markets in which we participate are intensely competitive, and pricing pressure, new technologies or other competitive dynamics could adversely affect our business and operating results.
Damage to our reputation could also reduce the value and effectiveness of our brand name and could reduce investor confidence in us and materially and adversely affect our business, financial condition and results of operations. The markets in which we participate are competitive, and pricing pressure, new technologies or other competitive dynamics could adversely affect our business and operating results.
If salesforce.com takes any of these actions, we may suffer lower sales, increased operating costs and loss of revenue from certain of our digital lending solutions until equivalent technology is either developed by us, or, if available from a third party, is identified, obtained and integrated.
If salesforce.com takes any of these actions, we may suffer lower sales, increased operating costs and loss of revenue from our CL digital lending platform until equivalent technology is either developed by us, or, if available from a third party, is identified, obtained and integrated.
Our customers and prospective customers are highly regulated and may be required to comply with stringent regulations in connection with subscribing to and implementing our solutions. As a provider of technology to financial institutions, we are examined on a periodic basis by various regulatory agencies and required to review certain of our suppliers and partners.
Our customers and prospective customers are highly regulated and may be required to comply with stringent regulations in connection with subscribing to, implementing and using our solutions. As a provider of technology to financial institutions, we are examined on a periodic basis by various regulatory agencies and required to review our third-party suppliers and partners.
We are currently involved in these types of disputes, and given the high level of this activity in our industry, we expect these types of disputes to continue to arise in the future. If we are unsuccessful in defending claims for which we are required to provide indemnity, our business and operating results could be adversely affected.
We have in the past been involved in these types of disputes, and given the high level of this activity in our industry, we expect these types of disputes to continue to arise in the future. If we are unsuccessful in defending claims for which we are required to provide indemnity, our business and operating results could be adversely affected.
We do not have any control over the availability or performance of salesforce.com's Force.com platform, and if we or our digital lending solution customers encounter problems with it, we may be required to replace Force.com with another platform, which would be difficult and costly.
We do not have any control over the availability or performance of salesforce.com's Force.com platform, and if we or our CL digital lending platform customers encounter problems with it, we may be required to replace Force.com with another platform, which could be difficult and costly.
We may acquire or invest in companies, or pursue business partnerships, which may divert our management's attention and present additional risks, and we may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments, all of which could have a material adverse effect on our business and results of operations.
We may acquire or invest in companies, pursue business partnerships or divest non-strategic products or assets, which may divert our management's attention and present additional risks, and we may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments, all of which could have a material adverse effect on our business and results of operations.
The market data and forecasts included in our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings with the SEC, including the data and forecasts published by BauerFinancial, Deloitte and Venture Scanner among others, and our internal estimates and research are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate.
The market data and forecasts included in our Annual Report on Form 10-K for the year ended December 31, 2023 and our other filings with the SEC, including the data and forecasts published by BauerFinancial, among others, and our internal estimates and research are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate.
In general, larger financial institutions are subject to more stringent regulations and as a result, as we sell our solutions to larger financial institutions, we will become obligated to meet more stringent regulatory standards, including more in-depth audits.
In general, larger financial institutions are subject to more stringent regulations and as a result, as we sell our solutions to larger financial institutions, we will become obligated to meet more stringent regulatory standards, including more in-depth due diligence.
In addition, even if holders of the 2023 Notes, 2025 Notes or 2026 Notes do not elect to convert their 2023 Notes, 2025 Notes or 2026 Notes, as applicable, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2023 Notes, 2025 Notes or 2026 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital, which may negatively impact the trading price of our common stock. 54 Table of Contents Item 1B.
In addition, even if holders of the 2026 Notes or 2025 Notes do not elect to convert their 2026 Notes or 2025 Notes, as applicable, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2026 Notes or 2025 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital, which may negatively impact the trading price of our common stock.
Our revenue growth rates may decline or fluctuate as a result of a number of factors, including customer spending levels, customer dissatisfaction with our solutions, decreases in the number of customers, decreases in usage of our solutions by End Users, changes in the type and size of our customers, pricing changes, competitive conditions, the loss of our customers to other competitors and general economic conditions.
Our revenue growth rates may decline or fluctuate as a result of a number of factors, including customer spending levels, customer dissatisfaction with our solutions, customers failing to meet their End User growth projections, decreases in the number of customers, decreases in usage of our solutions by End Users, changes in the type and size of our customers, pricing changes, competitive conditions, the loss of our customers to other competitors and general economic conditions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePursuant to the first of which the Company leases approximately 129,000 square feet of office space with an initial term that expires on April 30, 2028, with the option to extend the lease for an additional ten-year term, and pursuant to the second of which the Company leases approximately 129,000 square feet of office space with lease terms of approximately ten years, with the options to extend the leases on the second building.
Biggest changePursuant to the first of which the Company leases approximately 129,000 square feet of office space with an initial term that expires on April 30, 2028, with the option to extend the lease for an additional ten-year term, and pursuant to the second of which the Company leases approximately 129,000 square feet of office space with separate lease terms for different portions of the building of approximately seven and ten years, with the options to extend the separate leases on the second building from five to ten years.
Approximately 105,000 square feet of the first building is being actively marketed for sublease. We also maintain office space in U.S. cities located in Nebraska, Iowa, North Carolina, Texas and Minnesota. Internationally we maintain offices in India, Australia, and the United Kingdom. We believe our current facilities are in good condition, suitable and adequate for the conduct of our business.
Approximately 105,000 square feet of the first building is being actively marketed for sublease. In addition, we maintain office space in U.S. cities located in Nebraska, Iowa, North Carolina and Minnesota. Internationally we maintain offices in India, Australia, and the United Kingdom. We believe our current facilities are in good condition, suitable and adequate for the conduct of our business.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosures. Not applicable. 55 Table of Contents PART II
Biggest changeMine Safety Disclosures. Not applicable. 56 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures. 55 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. 56 Item 6 . [Reserved] 57 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 58 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 79 Item 8.
Biggest changeItem 4. Mine Safety Disclosures. 56 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. 57 Item 6 . [Reserved] 58 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 59 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 80

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeNote that historic stock price performance is not necessarily indicative of future stock price performance. 56 Table of Contents The information contained in the Stock Performance Graph shall not be deemed to be soliciting material or to be filed with the SEC nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.
Biggest changeThe information contained in the Stock Performance Graph shall not be deemed to be soliciting material or to be filed with the SEC nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing. 57 Table of Contents Issuer Purchases of Equity Securities None.
Our common stock was priced at $13.00 per share in our initial public offering on March 20, 2014. As of December 31, 2022, we had 22 holders of record of our common stock.
Our common stock was priced at $13.00 per share in our initial public offering on March 20, 2014. As of December 31, 2023, we had 22 holders of record of our common stock.
This graph assumes the investment of $100 on December 31, 2017 in our common stock, the S&P 1500 Application Software Index, the Russell 2000 Index and the S&P Software & Services Select Index, and assumes the reinvestment of dividends, if any.
This graph assumes the investment of $100 on December 31, 2018 in our common stock, the Russell 2000 Index and the S&P Software & Services Select Index, and assumes the reinvestment of dividends, if any.
Performance Graph The graph set forth below compares the cumulative total stockholder return on our common stock between December 31, 2017 and December 31, 2022, with the cumulative total return of (i) the Russell 2000 Index, (ii) the S&P 1500 Application Software Index and (iii) the S&P Software & Services Select Index.
We do not anticipate paying cash dividends on our common stock for the foreseeable future. Performance Graph The graph set forth below compares the cumulative total stockholder return on our common stock between December 31, 2018 and December 31, 2023, with the cumulative total return of (i) the Russell 2000 Index and (ii) the S&P Software & Services Select Index.
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We do not anticipate paying cash dividends on our common stock for the foreseeable future. Use of Proceeds From Registered Securities On May 15, 2020, we completed a registered public offering of 4,735,294 shares of our common stock at a price of $76.50 per share, before underwriting discounts and commissions.
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We sold 4,235,294 of such shares and existing stockholders sold 500,000 of such shares. We did not receive any proceeds from the sale of shares by the selling stockholders in the May 2020 common stock offering.
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The May 2020 common stock offering was made pursuant to an automatically effective shelf registration statement on Form S-3 that we filed with the Securities and Exchange Commission (the "SEC") on June 4, 2019 (File No. 333-231947), as amended on May 11, 2020.
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There have been no material changes in the planned use of proceeds from our May 2020 common stock offering from that described in the final prospectus filed with the SEC pursuant to Rule 424(b) on May 13, 2020.
Removed
With a portion of the proceeds from this offering, we used $51.2 million to repurchase a portion of our 2023 Notes and unwind associated bond hedges and warrant transactions, we completed the acquisition of ClickSWITCH for $65.5 million in cash (which included a hold-back of $1.0 million) and we completed the acquisition of Sensibill for $5.1 million in cash.
Removed
Equity Compensation Plan Information Information regarding the securities authorized for issuance under our equity compensation plans will be included in our Proxy Statement relating to our 2023 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2022 and is incorporated herein by reference.
Removed
In 2022 and going forward we will use the S&P Software & Services Select Index as we believe it is more reflective of the cyclical nature of the markets we serve and is a more appropriate index to compare our stock performance to our peer set.
Removed
If a company selects a different index from an index used in the immediately preceding fiscal year, the company's stock performance graph must compare the registrant's total return to that of both the newly selected index and the index used in the immediately preceding fiscal year and explain the reason for the change.
Removed
Pursuant to SEC rules, for this stock performance line graph and table we have included a comparison of our cumulative total return to the selected indices (i) the Russell 2000 Index, (ii) the S&P Software & Services Select Index and (iii) the discontinued S&P 1500 Application Software Index.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

152 edited+38 added−59 removed88 unchanged
Biggest changeFor the year ended December 31, 2021, net cash used in financing activities was $51.2 million, consisting of $63.7 million for the partial repurchase of 2023 Notes, partially offset by $6.6 million of net proceeds received in connection with the early termination of bond hedges and warrants related to the 2023 Notes, and $5.9 million of cash received from the exercise of stock options. 78 Table of Contents For the year ended December 31, 2020, net cash provided by financing activities was $434.7 million, consisting of proceeds from the issuance of common stock of $311.3 million, net of issuance costs, from the May 2020 common stock offering, issuance of $132.6 million principal amount of the 2025 Notes, net of issuance costs, from the November 2020 offering of the 2025 Notes, $34.1 million in net proceeds received in connection with the early termination of bond hedges and warrants related to the 2023 Notes, and $13.3 million of cash received from the exercise of stock options, partially offset by the Capped Call transactions of $39.8 million and payment of contingent consideration related to the acquisition of Cloud Lending, of which $16.9 million of the payment was estimated at acquisition date fair value and included in financing activities.
Biggest changeFor the year ended December 31, 2021, net cash used in financing activities was $51.2 million, consisting of $63.7 million for the partial repurchase of 2023 Notes, partially offset by $6.6 million of net proceeds received in connection with the early termination of bond hedges and warrants related to the 2023 Notes, and $5.9 million of cash received from the exercise of stock options.
Over the long term, we intend to continue to invest in additional sales representatives to identify and address opportunities in the financial institution, FinTech, Alt-FI and Brand markets across the U.S. and internationally and to increase our number of sales support and marketing personnel, as well as our investment in marketing initiatives designed to increase awareness of our solutions and generate new customer opportunities.
Over the long term, we intend to continue to invest in additional sales representatives to identify and address opportunities in the financial institution, FinTech and Alt-FI markets across the U.S. and internationally and to increase our number of sales support and marketing personnel, as well as our investment in marketing initiatives designed to increase awareness of our solutions and generate new customer opportunities.
For the year ended December 31, 2022, our net cash and cash equivalents provided by operating activities was $36.6 million, which consisted of non-cash adjustments of $166.0 million, partially offset by a net loss of $109.0 million and cash outflows from changes in operating assets and liabilities of $20.5 million.
For the year ended December 31, 2022, our net cash provided by operating activities was $36.6 million, which consisted of non-cash adjustments of $166.0 million, partially offset by a net loss of $109.0 million and cash outflows from changes in operating assets and liabilities of $20.5 million.
We calculate ARR as the annualized value of all recurring revenue recognized in the last month of the reporting period, with the exception of variable revenue in excess of contracted amounts for which we instead take the average monthly run rate of the trailing three months within that reporting period.
We calculate Subscription ARR as the annualized value of all recurring subscription revenue recognized in the last month of the reporting period, with the exception of variable revenue in excess of contracted amounts for which we instead take the average monthly run rate of the trailing three months within that reporting period.
We recognize any related implementation services revenues ratably over the initial customer agreement term beginning on the date we commence recognizing subscription fees. Contract asset balances arise primarily when we provide services in advance of billing for those services.
We typically recognize any related implementation services revenues ratably over the initial customer agreement term beginning on the date we commence recognizing subscription fees. Contract asset balances arise primarily when we provide services in advance of billing for those services.
Additionally, over the past several years we have acquired or developed new solutions and additional functionality that serve a broader range of needs of financial institutions as well as the needs of FinTechs, Alt-FIs and Brands.
Additionally, over the past several years we have acquired or developed new solutions and additional functionality that serve a broader range of needs of financial institutions as well as the needs of FinTechs and Alt-FIs.
Total Other Income (Expense), Net Total other income (expense), net, consists primarily of interest income and expense, other non-operating income and expense, loss on disposal of long-lived assets, foreign currency translation adjustment and loss on extinguishment of debt. We earn interest income on our cash, cash equivalents and investments.
Total Other Income (Expense), Net Total other income (expense), net, consists primarily of interest income and expense, other non-operating income and expense, loss on disposal of long-lived assets, foreign currency translation adjustment and gain (loss) on extinguishment of debt. We earn interest income on our cash, cash equivalents and investments.
We currently intend to increase investments in technology innovation and software development as we enhance our solutions and platforms and increase or expand the number of solutions that we offer.
We intend to increase investments in technology innovation and software development as we enhance our solutions and platforms and increase or expand the number of solutions that we offer.
The duration and severity of these events, general economic conditions and their long-term effects on us and our customers remain uncertain and difficult to predict.
The duration and severity of these general economic conditions and their long-term effects on us and our customers remain uncertain and difficult to predict.
Over the long term, we expect cost of revenues to continue to grow in absolute dollars as we grow our business but to fluctuate as a percentage of revenues based principally on the level and timing of implementation support activities, timing of capitalized software development costs, debit card related pass-through fees, and other related costs.
Over the long term, we expect cost of revenues to continue to grow in absolute dollars as we grow our business but to fluctuate as a percentage of revenues based principally on cost efficiencies realized in the business, the level and timing of implementation support activities, timing of capitalized software development costs, debit card related pass-through fees, and other related costs.
The promised consideration may include fixed amounts, variable amounts or both. Revenues are recognized net of sales credits and allowances. Revenue-generating activities are directly related to the sale, implementation and support of our solutions within a single operating segment.
The promised consideration may include fixed amounts, variable amounts or both. Revenues are recognized net of sales credits and allowances. Revenue-generating activities directly relate to the sale, implementation and support of our solutions within a single operating segment.
A discussion regarding year-to-year comparisons between the year ended December 31, 2021 and December 31, 2020 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
A discussion regarding year-to-year comparisons between the year ended December 31, 2022 and December 31, 2021 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections titled "Risk Factors" and “Special Note Regarding Forward Looking Statements” above for a discussion of the uncertainties, risks and assumptions associated with these statements.
Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections titled "Risk Factors" and "Special Note Regarding Forward Looking Statements" above for a discussion of the uncertainties, risks and assumptions associated with these statements.
Certain research and development costs that are related to our software development, which include salaries and other personnel-related costs, including employee benefits, stock-based compensation and bonuses attributed to programmers, software engineers and quality control teams working on our software solutions, are capitalized and are included in intangible assets, net on the consolidated balance sheets.
Certain research and development costs that are related to our software development, which include salaries and other personnel-related costs, comprised of employee benefits, stock-based compensation and bonuses attributed to programmers, software engineers and quality control teams working on our software solutions, are capitalized and included in intangible assets, net on the consolidated balance sheets.
The structure and terms of our Helix arrangements with FinTechs and Brands vary, but typically involve relatively lower contracted minimum revenues and instead emphasize usage-based revenue, with such revenue recognized as it is incurred. We have achieved significant growth since our inception.
The structure and terms of our Helix arrangements with FinTechs vary, but typically involve relatively lower contracted minimum revenues and instead emphasize usage-based revenue, with such revenue recognized as it is incurred. We have achieved high growth since our inception.
We had annual revenue churn of 6.3%, 5.4% and 5.9% for the years ended December 31, 2022, 2021, and 2020, respectively. Our use of revenue churn has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate revenue churn differently, which reduces its usefulness as a comparative measure.
We had annual revenue churn of 6.1%, 6.3% and 5.4% for the years ended December 31, 2023, 2022 and 2021, respectively. Our use of revenue churn has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate revenue churn differently, which reduces its usefulness as a comparative measure.
Our integrated, end-to-end collection of solutions includes retail, small business and commercial banking, regulatory and compliance, digital lending, relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others.
Our integrated, end-to-end collection of solutions includes retail, SMB and commercial banking, regulatory and compliance, digital lending and relationship pricing, open platform solutions, BaaS, digital account opening, account switching and data-driven sales enablement, spending insights and portfolio management solutions among others.
ARR does not include revenue from professional services or other sources of revenue that are not deemed to be recurring in nature. ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates.
Total ARR does not include revenue from professional services or other sources of revenue that are not deemed to be recurring in nature. Subscription and Total ARR are not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates.
We consider these adjustments, to some extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, merger and acquisition activities result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations.
We consider these adjustments, to some extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, transaction-related activities result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations.
We have also introduced the Q2 Innovation Studio, an API-based and SDK-based open technology platform that allows our financial institution customers and other technology partners to develop unique extensions of and integrations to our digital banking platform, allowing financial institutions to quickly and easily deploy customized experiences and the latest financial services expected by End Users. 59 Table of Contents We believe that financial services providers are best served by a broad integrated portfolio of digital solutions that provide rapid, flexible and comprehensive integration with internal and third-party solutions allowing them to provide modern, intuitive digital financial services in a secure, regulatory-compliant manner.
We have also introduced the Q2 Innovation Studio, an API-based and SDK-based open technology platform that allows our financial institution customers and other technology partners to develop unique extensions of and integrations to our digital banking platform, allowing financial institutions to quickly and easily deploy customized experiences and the latest financial services expected by End Users. 60 Table of Contents We believe that financial services providers are best served by a broad integrated portfolio of digital solutions that provide rapid, flexible and comprehensive integration with internal and third-party solutions allowing them to provide modern, intuitive, advanced and regulatory-compliant digital banking and lending services.
We had 444, 448 and 450 Installed Customers on our digital banking platform as of December 31, 2022, 2021 and 2020, respectively.
We had 450, 444 and 448 Installed Customers on our digital banking platform as of December 31, 2023, 2022 and 2021, respectively.
We provide non-GAAP information that excludes restructuring charges related to the estimated costs of exiting and terminating facility lease commitments, partially offset by anticipated sublease income, any related impairments of the right of use assets as they relate to corporate restructuring and exit activities, as well as severance and other related compensation charges associated with eliminating certain positions in connection with initiatives to optimally align our resources to the businesses that will drive the most long-term value.
We provide non-GAAP information that excludes restructuring charges related to the estimated costs of exiting and terminating facility lease commitments, partially offset by anticipated sublease income, any related impairments of the right of use assets as they relate to corporate restructuring and exit activities, as well as severance and other related compensation charges associated with eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value.
The rate at which our customers add Registered Users vary significantly period-to-period based on the timing of our implementations of new customers, the timing of registration of new End Users and customers performing inactive account clean-up.
The rate at which our customers add Registered Users varies significantly from period-to-period based on the timing of our implementations of new customers, the timing of registration of new End Users and customers performing inactive account clean-up.
Interest expense consists primarily of the interest from the amortization of debt discount prior to the adoption of ASU 2020-06, issuance costs, and coupon interest attributable to our convertible notes issued in February 2018, or 2023 Notes, our convertible notes issued in June 2019, or 2026 Notes, and our convertible notes issued in November 2020, or 2025 Notes, as well as fees and interest associated with the letter of credit issued to our landlord for the security deposit for our corporate headquarters.
Interest expense consists primarily of the interest from the amortization of debt issuance costs and coupon interest attributable to our convertible notes issued in February 2018, or 2023 Notes, our convertible notes issued in June 2019, or 2026 Notes and our convertible notes issued in November 2020, or 2025 Notes, as well as fees and interest associated with the letter of credit issued to our landlord for the security deposit for our corporate headquarters.
We generally price our digital banking platform solutions based on the number of solutions purchased by our customers and the number of Registered Users or commercial account holders utilizing our solutions.
We generally price our digital banking platform solutions based on the number of solutions purchased by our customers and the number of Registered Users (as defined below) or commercial account holders utilizing our solutions.
Lease and other restructuring charges Lease and other restructuring charges include costs related to the early vacating of certain facilities, any related impairment of the right of use assets and ongoing expenses of other vacated facilities, partially offset by anticipated sublease income from the associated facilities, as well as severance and other related compensation charges associated with eliminating certain positions in connection with initiatives to optimally align our resources to the businesses that will drive the most long-term value.
Lease and Other Restructuring Charges Lease and other restructuring charges include costs related to the early vacating of certain facilities, any related impairment of the right of use assets and ongoing expenses of other vacated facilities, partially offset by anticipated sublease income from the associated facilities, as well as severance and other related compensation charges associated with eliminating certain positions in connection with initiatives intended to align our resources to the portions of our business that we believe will drive the most long-term value.
The structure and terms of our newer lending arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements.
The structure and terms of our digital lending and relationship pricing arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements.
During each of the past 10 years, our average number of Registered Users (as defined below) per installed customer on our digital banking platform, or Installed Customer, has grown, and in many instances we have been able to sell additional solutions to existing customers.
During each of the past 11 years, our average number of Registered Users per installed customer on our digital banking platform, or Installed Customer, has grown, and in many instances we have been able to sell additional solutions to existing customers.
The structure and terms of our newer lending arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements.
The structure and terms of our digital lending and relationship pricing arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements.
Items such as the deferred revenue reduction from purchase accounting, stock-based compensation, acquisition related costs, amortization of acquired technology, amortization of acquired intangible assets, partnership termination charges and lease and other restructuring charges can have a material impact on our GAAP financial results. Non-GAAP Revenue We define non-GAAP revenue as total revenue excluding the impact of purchase accounting.
Items such as the deferred revenue reduction from purchase accounting, stock-based compensation, transaction-related costs, amortization of acquired technology, amortization of acquired intangible assets and lease and other restructuring charges can have a material impact on our GAAP financial results. 63 Table of Contents Non-GAAP Revenue We define non-GAAP revenue as total revenue excluding the impact of purchase accounting.
We believe that providing these non-GAAP measures that exclude acquisition related costs, allows users of our financial statements to better review and understand the historical and current results of our continuing operations, and also facilitates comparisons to our historical results and results of less acquisitive peer companies, both with and without such adjustments. • Partnership termination charges.
We believe that providing these non-GAAP measures that exclude transaction-related costs allows users of our financial statements to better review and understand the historical and current results of our continuing operations, and also facilitates comparisons to our historical results and results of less acquisitive peer companies, both with and without such adjustments. • Lease and other restructuring charges.
We generally price our consumer digital banking platform solutions based on the number of Registered Users, while our commercial digital banking platform solutions are priced using various methodologies, some of which have minimal impact on Registered Users. As the number of Registered Users of our solutions increases, our revenues generally tend to grow.
We generally price our consumer digital banking platform solutions based on the number of Registered Users, while our commercial digital banking platform solutions are priced using various methodologies. As the number of Registered Users of our solutions increases, our revenues generally tend to grow.
We generally earn additional revenues from our digital banking platform customers based on the number of transactions that End Users perform on our solutions in excess of the levels included in our standard subscription fee.
We generally earn additional revenues from our digital banking platform customers based on the number of End Users on our solutions, the number of transactions that End Users perform on our solutions, and the excess number of users and transactions above what is included in our standard subscription fee.
ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or replace these items. Our use of ARR has limitations as an analytical tool, and investors should not consider it in isolation.
Subscription and Total ARR should be viewed independently of revenue and deferred revenue as Subscription and Total ARR are operating metrics and are not intended to be combined with or replace these items. Our use of Subscription and Total ARR has limitations as an analytical tool, and investors should not consider it in isolation.
We estimate the fair value of market stock units on the date of grant using a Monte Carlo simulation model. The determination of fair value of the market stock units is affected by our stock price and a number of assumptions including the expected volatility and the risk-free interest rate.
We value TSR PSUs and MSUs on grant date using the Monte Carlo simulation model. The determination of fair value is affected by our stock price and a number of assumptions including the expected volatility and the risk-free interest rate.
Our expected volatility at the date of grant was based on the historical volatilities of our stock and peer firms' stocks and the Index over the performance period. We assume no dividend yield and recognize compensation expense ratably over the performance period of the market stock unit award.
Our expected volatility at the date of grant is based on the historical volatilities of our stock and peer firms' stocks and the Index over the performance period. We assume no dividend yield and recognize compensation expense ratably over the performance period of the award, as applicable.
We continue to invest in personnel, business processes, third-party partners for intellectual property and transactional processing in our solutions and systems infrastructure to standardize our business processes and drive future efficiency in our implementations, customer support and data center operations.
We continue to invest in personnel, business process improvement, third-party partners for intellectual property and transactional processing in our solutions and systems infrastructure to standardize our business processes and drive future efficiency in our implementations, cloud-based hosting services, customer support and data center operations.
(4) Includes a reduction of zero, $1.5 million and $8.9 million related to the early extinguishment of a portion of our 2023 Notes for the years ended December 31, 2022, 2021 and 2020, respectively. 72 Table of Contents The following table sets forth our results of operations data as a percentage of revenues for each of the periods indicated: Year Ended December 31, 2022 2021 2020 Revenues (1) 100.0 % 100.0 % 100.0 % Cost of revenues (2) 54.7 % 54.9 % 56.6 % Gross margin 45.3 % 45.1 % 43.4 % Operating expenses: Sales and marketing 19.1 % 17.2 % 18.0 % Research and development 23.0 % 23.5 % 24.2 % General and administrative 15.9 % 15.6 % 17.6 % Acquisition related costs 0.2 % 0.5 % 0.1 % Amortization of acquired intangibles 3.2 % 3.6 % 4.4 % Partnership termination charges — % — % 3.3 % Lease and other restructuring charges (3) 2.3 % 0.4 % 0.5 % Total operating expenses 63.8 % 60.8 % 68.1 % Loss from operations (18.5) % (15.6) % (24.8) % Total other income (expense), net (4) (0.2) % (6.6) % (9.0) % Loss before income taxes (18.8) % (22.3) % (33.8) % Provision for income taxes (0.5) % (0.3) % (0.4) % Net loss (19.3) % (22.6) % (34.2) % _______________________________________________________________________________ (1) Includes deferred revenue reduction from purchase accounting of 0.1%, 0.4% and 1.1% for the years ended December 31, 2022, 2021 and 2020, respectively.
(3) Includes a gain of $19.9 million, a reduction of zero and a $1.5 million expense related to the early extinguishment of a portion of our convertible notes for the years ended December 31, 2023, 2022 and 2021, respectively. 73 Table of Contents The following table sets forth our results of operations data as a percentage of revenues for each of the periods indicated: Year Ended December 31, 2023 2022 2021 Revenues (1) 100.0 % 100.0 % 100.0 % Cost of revenues (2) 51.5 % 54.7 % 54.9 % Gross margin 48.5 % 45.3 % 45.1 % Operating expenses: Sales and marketing 17.5 % 19.1 % 17.2 % Research and development 22.0 % 23.0 % 23.5 % General and administrative 17.6 % 15.9 % 15.6 % Transaction-related costs — % 0.2 % 0.5 % Amortization of acquired intangibles 3.3 % 3.2 % 3.6 % Lease and other restructuring charges 1.8 % 2.3 % 0.4 % Total operating expenses 62.2 % 63.8 % 60.8 % Loss from operations (13.8) % (18.5) % (15.6) % Total other income (expense), net (3) 3.9 % (0.2) % (6.6) % Loss before income taxes (9.9) % (18.8) % (22.3) % Provision for income taxes (0.6) % (0.5) % (0.3) % Net loss (10.5) % (19.3) % (22.6) % _______________________________________________________________________________ (1) Includes deferred revenue reduction from purchase accounting of 0.1%, 0.1% and 0.4% for the years ended December 31, 2023, 2022 and 2021, respectively.
We estimate the fair value of the reporting unit using a "step one" analysis using a fair-value-based approach based on the market capitalization or a discounted cash flow analysis of projected future results to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
We estimate the fair value of the reporting unit using a "step one" analysis using a fair-value-based approach based on market capitalization to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
General and administrative expenses also include costs to comply with regulations governing public companies and financial institutions, costs of directors' and officers' liability insurance, investor relations activities and costs to comply with Section 404 of the Sarbanes-Oxley Act, or SOX.
General and administrative expenses also include costs to comply with regulations governing public companies and financial institutions, costs of directors' and officers' liability insurance, third-party legal fees, investor 76 Table of Contents relations activities and costs to comply with Section 404 of the Sarbanes-Oxley Act, or SOX.
We anticipate that research and development expenses will increase in absolute dollars in the future as we continue to support and expand our platform and enhance our existing solutions, as we believe existing customers will have an increased focus on maintaining and improving their digital banking offerings, including functionality such as digital account opening and online lending.
We anticipate that research and development expenses will increase in absolute dollars in the future as we continue to support and expand our platform and enhance our existing solutions, as we believe existing customers will have an increased focus on maintaining and improving their digital offerings.
We have deep domain expertise in developing and delivering secure, advanced digital solutions designed to help our customers and technology partners compete in the complex and heavily regulated financial services industry. Over 18 years ago, Q2 began by providing digital banking solutions to regional and community financial institutions.
We have deep domain expertise in developing and delivering advanced digital banking and lending solutions designed to help our customers and technology partners compete in the complex and heavily regulated financial services industry. Over 19 years ago, Q2 began by providing digital banking solutions to RCFIs.
The use of adjusted EBITDA as an analytical tool has limitations such as: • depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and adjusted EBITDA does not reflect cash requirements for such replacements; • adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments; • adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation; • adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and • other companies, including companies in our industry, might calculate adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures.
The use of adjusted EBITDA as an analytical tool has limitations such as: • depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and adjusted EBITDA does not reflect cash requirements for such replacements; • adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments; • adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation; • adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and • other companies, including companies in our industry, might calculate adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures. 65 Table of Contents Because of these and other limitations, you should consider adjusted EBITDA together with our GAAP financial measures including cash flow from operations and net loss.
Under certain circumstances, we have determined that these implementation services qualify as a separate performance obligation in certain markets and geographies, and the implementation services for these agreements are recognized over time as services are performed. Professional services revenues consist primarily of Premier Services.
Implementation services for on-premises agreements are recognized at commencement date. Under certain circumstances, we have determined that these implementation services qualify as a separate performance obligation in certain markets and geographies, and the implementation services for these agreements are recognized over time as services are performed. 69 Table of Contents Professional services revenues consist primarily of Premier Services.
Because of these unique characteristics of stock-based compensation, we exclude these expenses when analyzing the organization's business performance. • Acquisition related costs . We exclude certain expense items resulting from our evaluation and completion of merger and acquisition opportunities, such as related legal, accounting and consulting fees, as well as changes in fair value of contingent consideration and retention expense.
Because of these unique characteristics of stock-based compensation, we exclude these expenses when analyzing the organization's business performance. • Transaction-related costs . We exclude certain expense items resulting from our evaluation and completion of merger and acquisition and divestiture opportunities, such as related legal, accounting and consulting fees and retention expense.
Our solutions include a broad and deep portfolio of digital banking solutions; lending solutions; an open technology platform, the Q2 Innovation Studio, which is a portfolio of technologies and programs which can be leveraged to design, develop, and distribute innovative products, services, features, and integrations by enabling a partnership ecosystem on Q2's digital banking platform; and Helix, a comprehensive banking as a service, or BaaS, solution, which enables innovative companies to integrate banking products and services into their offerings.
Our solutions include a broad and deep portfolio of digital banking solutions; digital lending and relationship pricing solutions; an open technology platform, the Q2 Innovation Studio, which is a portfolio of technologies and programs which can be leveraged to design, develop, and distribute innovative products, services, features, and integrations by enabling a partnership ecosystem on Q2's digital banking platform; and Helix, a comprehensive banking as a service, or BaaS, solution which also serves as a cloud-native core, both of which enable innovative companies and financial institutions to integrate unique banking products and services into their offerings.
Judgment is required to determine the accounting for these types of revenue. We consider various factors including the degree to which usage is interdependent or interrelated to past services, costs to us per user over the contract, and contractual price per user changes and their relationship to market terms, forecasted data, and our cost to fulfill the obligation.
We consider various factors including the degree to which usage is interdependent or interrelated to past services, costs to us per user over the contract, and contractual price per user changes and their relationship to market terms, forecasted data, and our cost to fulfill the obligation.
Annualized Recurring Revenue We believe Annualized Recurring Revenue, or ARR, provides important information about our future revenue potential, our ability to acquire new clients, and our ability to maintain and expand our relationship with existing clients.
We believe Subscription ARR, and Total Annual Recurring Revenue, or Total ARR, provide important information about our future revenue potential, our ability to acquire new clients, and our ability to maintain and expand our relationship with existing clients.
Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2022 2021 2020 Net cash provided by (used in): Operating activities $ 36,556 $ 31,092 $ (2,938) Investing activities (165,555) (65,129) (124,163) Financing activities 5,882 (51,160) 434,676 Effect of exchange rate changes on cash, cash equivalents and restricted cash (802) (167) 48 Net increase (decrease) in cash, cash equivalents and restricted cash $ (123,919) $ (85,364) $ 307,623 Cash Flows from Operating Activities Our operating activities are primarily influenced by net loss less non-cash items, the amount and timing of customer receipts and vendor payments and by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and increase in the number of installed customers.
Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2023 2022 2021 Net cash provided by (used in): Operating activities $ 70,292 $ 36,556 $ 31,092 Investing activities 113,268 (165,555) (65,129) Financing activities (152,012) 5,882 (51,160) Effect of exchange rate changes on cash, cash equivalents and restricted cash 182 (802) (167) Net increase (decrease) in cash, cash equivalents and restricted cash $ 31,730 $ (123,919) $ (85,364) 78 Table of Contents Cash Flows from Operating Activities Our cash flows from operating activities are primarily influenced by net loss less non-cash items, the amount and timing of customer receipts and vendor payments and by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and increase in the number of installed customers.
Our ARR also includes the contracted minimums associated with all contracts in place at the end of the quarter that have not yet commenced, and revenue generated from Premier Services.
Our Total ARR also includes the contracted minimums associated with all contracts in place at the end of the quarter for which revenue recognition has not yet commenced, and revenue generated from Premier Services.
Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Measures" for additional detail on how we define "Installed Customers" and "Registered Users." We believe we have a significant opportunity to continue to grow our business and that the investments we are making are positioning us to continue to realize revenue growth and improve our operating efficiencies.
Please see "Key Operating Measures" for additional detail on how we define "Installed Customers" and "Registered Users." We believe we have the opportunity to continue to grow our business and that the investments we are making are positioning us to continue to realize revenue growth and improve our operating efficiencies.
We have rapidly grown since then through a combination of broad market acceptance of our award-winning solutions and relentless innovation, investment and acquisitions, while expanding our solutions to larger financial institutions.
We have rapidly grown since then through a combination of broad market acceptance of our award-winning solutions and relentless innovation, investment and acquisitions.
We anticipate that sales and marketing expenses will continue to increase in absolute dollars in the future as we add personnel to support our revenue growth and as we increase marketing spend to attract new customers, retain and grow existing customers, build brand awareness, and as we continue to return to in-person sales formats and experiences for future user conferences, including our annual client conference to be held in 2023.
We anticipate that sales and marketing expenses will continue to increase in absolute dollars in the long-term as we continue to support our revenue growth and increase marketing spend to attract new customers, retain and grow existing customers, build brand awareness, and as we continue to hold in-person sales formats and experiences for future user conferences, including our annual client conference typically held during the second quarter.
We derive the majority of our revenues from subscription fees for the use of our solutions hosted in either our data centers or cloud-based hosting services, transactional revenue from bill-pay solutions and revenues for professional services and implementation services related to our solutions.
We derive the majority of our revenues from subscription fees for the use of our solutions hosted in either our data centers or with cloud-based service providers, transactional revenue from bill-pay solutions, revenues for professional services and implementation services related to our solutions and certain third-party related pass-through fees.
Our Installed Customers had approximately 21.1 million, 19.2 million and 17.8 million Registered Users as of December 31, 2022, 2021 and 2020, respectively.
Our Installed Customers had approximately 22.0 million, 21.1 million and 19.2 million Registered Users as of December 31, 2023, 2022 and 2021, respectively.
We assess our performance in this area using a metric we refer to as our net revenue retention rate, which we previously referred to as our revenue retention rate.
One of the ways we assess our performance in this area is by using a metric we refer to as our net revenue retention rate, which we previously referred to as our revenue retention rate.
(2) Includes amortization of acquired technology of $22.7 million, $22.0 million and $21.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.
(2) Includes amortization of acquired technology of $23.4 million, $22.7 million and $22.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Our control is evidenced by our involvement in the integration of the good or service on our platform before it is transferred to our customers and is further supported by us being primarily responsible to our customers and having a level of discretion in establishing pricing.
Our control is evidenced by our involvement in the integration of the good or service on our platform before it is transferred to our customers and is further supported by us being primarily responsible to our customers and having a level of discretion in establishing pricing. Revenues provided from agreements in which we are an agent are insignificant.
Over the long term, we anticipate that general and administrative expenses will continue to increase in absolute dollars as we continue to incur both increased external audit fees as well as additional spending to ensure continued regulatory and SOX compliance. We expect such expenses to decline as a percentage of our revenues over the longer term as our revenues grow.
Over the long term, we anticipate that general and administrative expenses will continue to increase in absolute dollars as we continue to incur both increased external audit fees as well as additional spending to ensure continued regulatory and SOX compliance.
We recognize the software license revenue once the customer obtains control of the license and the remaining arrangement consideration for maintenance revenue over time on a ratable basis over the term of the software license.
We recognize software license revenue once the customer obtains control of the license, which generally occurs at the start of each license term. We recognize the remaining arrangement consideration for maintenance revenue over time on a ratable basis over the term of the software license.
Other companies in our industry may calculate ARR differently, which reduces its usefulness as a comparative measure.
Other companies in our industry may calculate net revenue retention rate differently, which reduces its usefulness as a comparative measure.
Our obligations under our convertible senior notes are described in Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K. Information regarding our non-cancellable lease and other purchase commitments as of December 31, 2022 can be found in Note 11 to our consolidated financial statements included in this Annual Report on Form 10-K.
Information regarding our non-cancellable lease and other purchase commitments as of December 31, 2023 can be found in Notes 10 and 11 to our consolidated financial statements included in this Annual Report on Form 10-K.
Acquisition Related Costs Acquisition related costs include compensation expenses related to milestone provisions and retention agreements with certain former shareholders and employees of acquired businesses, which are recognized as earned, changes in fair value of the contingent consideration related to potential acquisition earnout payments and various legal and professional service expenses incurred in connection with merger and acquisition related matters, which are recognized when incurred.
Transaction-Related Costs Transaction-related costs include compensation expenses related to milestone provisions and retention agreements with certain former shareholders and employees of acquired businesses, which are recognized as earned, and various legal and professional service expenses incurred in connection with merger and acquisition and divestiture related matters, which are recognized when incurred.
While the financial institutions market is well-defined due to the regulatory classifications of those financial institutions, markets for FinTechs, Alt-FIs and brands are broader and more difficult to define due to the changing number of providers in each market.
We primarily sell our solutions through our direct sales organization. While the financial institutions market is well-defined due to the regulatory classifications of those financial institutions, markets for FinTechs and Alt-FIs are broader and more difficult to define due to the changing number of providers in each market.
We amortize the costs for an implementation once revenue recognition commences, and we amortize those implementation costs to cost of revenues over the expected period of customer benefit, which has been determined to be the estimated life of the technology.
We amortize the costs for an implementation once revenue recognition commences, and we amortize those implementation costs to cost of revenues over the expected period of customer benefit, which has been determined to be the estimated life of the technology. Other costs not directly recoverable from future revenues are expensed in the period incurred.
General and administrative expenses consist primarily of salaries and other personnel-related costs of our administrative, finance and accounting, information systems, legal and human resources employees.
General and administrative expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of our administrative, finance and accounting, information systems, legal, human resources employees and certain members of our executive team.
The effective delivery and management of secure and advanced digital solutions in the complex and heavily regulated financial services industry requires significant resources, personnel and expertise. We provide digital solutions that are designed to be highly configurable, scalable and adaptable to the specific needs of our customers.
Significant resources, personnel and expertise are required to effectively deliver and manage advanced digital banking and lending solutions in the complex and heavily regulated financial services industry. We provide digital solutions that are designed to be highly configurable, scalable and adaptable to the specific needs of our customers.
Actual results might differ from these estimates under different assumptions or conditions. 67 Table of Contents Our significant accounting policies are described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, and we believe that the accounting policies discussed below involve the greatest degree of complexity and exercise of significant judgments and estimates by our management.
Our significant accounting policies are described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, and we believe that the accounting policies discussed below involve the greatest degree of complexity and exercise of significant judgments and estimates by our management.
Amounts that have been invoiced are recorded in accounts receivable, and in revenues or deferred revenues, depending on when control of the service transfers to the customer. We continue to monitor the impacts the current inflationary environment and a potential global macroeconomic slowdown may have on our business into 2023.
Amounts that have been invoiced are recorded in accounts receivable, and in revenues or deferred revenues, depending on when control of the service transfers to the customer. We continue to monitor the impacts that higher interest rates, the current inflationary environment, challenges in the financial services industry, and global macroeconomic uncertainty may have on our business.
We recognize compensation expense ratably over the requisite service period. 70 Table of Contents Purchase Price Allocation, Intangible Assets and Goodwill The purchase price allocation for business combinations and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values.
Purchase Price Allocation, Intangible Assets and Goodwill The purchase price allocation for business combinations and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values.
Year Ended December 31, 2022 2021 2020 Revenue: GAAP revenue $ 565,673 $ 498,720 $ 402,751 Deferred revenue reduction from purchase accounting 644 2,129 4,404 Total Non-GAAP revenue $ 566,317 $ 500,849 $ 407,155 Non-GAAP Operating Income We provide non-GAAP operating income excluding such items as deferred revenue reduction from purchase accounting, stock-based compensation, acquisition related costs, amortization of acquired technology, amortization of acquired intangible assets, partnership termination charges and lease and other restructuring charges.
Year Ended December 31, 2023 2022 2021 Revenue: GAAP revenue $ 624,624 $ 565,673 $ 498,720 Deferred revenue reduction from purchase accounting 344 644 2,129 Total Non-GAAP revenue $ 624,968 $ 566,317 $ 500,849 Non-GAAP Operating Income We provide non-GAAP operating income that excludes such items as deferred revenue reduction from purchase accounting, stock-based compensation, transaction-related costs, amortization of acquired technology, amortization of acquired intangible assets and lease and other restructuring charges.
If we are successful in growing our revenues by selling additional innovative solutions to existing customers and creating deeper End User engagement, we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term. We sell our solutions primarily through our professional sales organization.
Many of these investments will occur in advance of any associated benefit. If we are successful in growing our revenues by selling additional innovative solutions to existing customers and creating deeper End User engagement, we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term.
Other costs not directly recoverable from future revenues are expensed in the period incurred. 65 Table of Contents We capitalize certain software development costs for those employees who are directly associated with and who devote time to developing our software solutions on an individual product basis, including those related to programmers, software engineers and quality control teams, as well as third-party development costs.
We capitalize certain software development costs for those employees who are directly associated with and who devote time to developing our software solutions on an individual product basis, including those related to programmers, software engineers and quality control teams, as well as third-party development costs.
In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.
In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results might differ from these estimates under different assumptions or conditions.
This increase was primarily attributable to an $14.4 million increase in third-party costs related to intellectual property included in our solutions, transaction processing costs incurred as a result of the increase in End Users from new and existing customers, as well as an increase in pass-through fees, a $10.7 million increase in personnel costs due to an increase in the number of personnel who provide implementation and customer support services and maintain our data centers and other technical infrastructure, a $6.2 million increase in co-location facility costs and depreciation for our data center assets resulting from the increased infrastructure necessary to support our growing customer base, a $2.0 million increase in overhead costs and other discretionary and travel-related expenses, a $1.3 million increase from amortization of capitalized implementation services and a $0.7 million increase from amortization of acquired customer technology resulting from our recently acquired businesses.
This increase was primarily attributable to a $7.8 million increase in co-location facility costs and depreciation for our data center assets resulting from the increased infrastructure necessary to support our growing customer base, a $6.6 million increase from the amortization of capitalized software development and capitalized implementation services, a $2.4 million increase in personnel costs, including an increase in the number of personnel who provide implementation and customer support services and maintain our data centers and other technical infrastructure and a $0.7 million increase from amortization of acquired customer technology resulting from the Sensibill business acquired in the fourth quarter of 2022, partially offset by a $2.3 million decrease in pass-through fees, a $2.0 million decrease in third-party costs related to intellectual property included in our solutions and transaction processing costs incurred and a $0.6 million decrease in overhead costs and other discretionary expenses.
If actual results, or the plans and estimates used in future impairment analyses are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges in a future period. The annual impairment test was performed as of October 31, 2022. No impairment of goodwill was identified during 2022.
If actual results, or the plans and estimates used in future impairment analyses are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges in a future period.
The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated (in thousands): Year Ended December 31, 2022 2021 2020 Reconciliation of net loss to adjusted EBITDA: Net loss $ (108,983) $ (112,746) $ (137,620) Depreciation and amortization 61,659 54,833 51,840 Stock-based compensation expense 65,157 54,334 49,235 Acquisition related costs 1,194 3,099 1,408 Provision for income taxes 2,908 1,643 1,416 Interest and other (income) expense, net 1,087 31,063 27,180 Deferred revenue reduction from purchase accounting 644 2,129 4,404 Partnership termination charges — — 13,244 Loss on extinguishment of debt — 1,513 8,932 Lease and other restructuring charges 13,225 2,008 2,181 Adjusted EBITDA $ 36,891 $ 37,876 $ 22,220 64 Table of Contents Components of Operating Results Revenues Revenue-generating activities directly relate to the sale, implementation and support of our solutions within a single operating segment.
The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated (in thousands): Year Ended December 31, 2023 2022 2021 Reconciliation of net loss to adjusted EBITDA: Net loss $ (65,384) $ (108,983) $ (112,746) Depreciation and amortization 71,707 61,659 54,833 Stock-based compensation 79,188 65,157 54,334 Transaction-related costs 24 1,194 3,099 Provision for income taxes 3,562 2,908 1,643 Interest and other (income) expense, net (4,724) 1,087 31,063 Deferred revenue reduction from purchase accounting 344 644 2,129 (Gain) loss on extinguishment of debt (19,869) — 1,513 Lease and other restructuring charges 12,092 13,225 2,008 Adjusted EBITDA $ 76,940 $ 36,891 $ 37,876 Components of Operating Results Revenues Revenue-generating activities directly relate to the sale, implementation and support of our solutions within a single operating segment.
If the carrying value is not recoverable, an impairment is recognized to the extent that the carrying value of the asset group exceeds its fair value. 71 Table of Contents Results of Operations The following table sets forth our results of operations data for each of the periods indicated (in thousands): Year Ended December 31, 2022 2021 2020 Revenues (1) $ 565,673 $ 498,720 $ 402,751 Cost of revenues (2) 309,328 273,685 228,152 Gross profit 256,345 225,035 174,599 Operating expenses: Sales and marketing 108,214 85,564 72,323 Research and development 130,103 116,952 97,381 General and administrative 90,163 77,915 70,937 Acquisition related costs 1,176 2,690 478 Amortization of acquired intangibles 18,248 17,901 17,888 Partnership termination charges — — 13,244 Lease and other restructuring charges (3) 13,202 2,008 2,181 Total operating expenses 361,106 303,030 274,432 Loss from operations (104,761) (77,995) (99,833) Total other income (expense), net (4) (1,314) (33,108) (36,371) Loss before income taxes (106,075) (111,103) (136,204) Provision for income taxes (2,908) (1,643) (1,416) Net loss $ (108,983) $ (112,746) $ (137,620) ______________________________________________________________________________ (1) Includes deferred revenue reduction from purchase accounting of $0.6 million, $2.1 million and $4.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.
If the carrying value is not recoverable, an impairment is recognized to the extent that the carrying value of the asset group exceeds its fair value. 72 Table of Contents Results of Operations The following table sets forth our results of operations data for each of the periods indicated (in thousands): Year Ended December 31, 2023 2022 2021 Revenues (1) $ 624,624 $ 565,673 $ 498,720 Cost of revenues (2) 321,973 309,328 273,685 Gross profit 302,651 256,345 225,035 Operating expenses: Sales and marketing 109,522 108,214 85,564 Research and development 137,334 130,103 116,952 General and administrative 110,186 90,163 77,915 Transaction-related costs 24 1,176 2,690 Amortization of acquired intangibles 20,667 18,248 17,901 Lease and other restructuring charges 10,975 13,202 2,008 Total operating expenses 388,708 361,106 303,030 Loss from operations (86,057) (104,761) (77,995) Total other income (expense), net (3) 24,235 (1,314) (33,108) Loss before income taxes (61,822) (106,075) (111,103) Provision for income taxes (3,562) (2,908) (1,643) Net loss $ (65,384) $ (108,983) $ (112,746) ______________________________________________________________________________ (1) Includes deferred revenue reduction from purchase accounting of $0.3 million, $0.6 million and $2.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.
We believe that the exclusion of deferred revenue reduction from purchase accounting allows users of our financial statements to better review and understand the historical and current results of our continuing operations. 62 Table of Contents • Amortization of acquired technology and intangible assets .
We believe that the exclusion of deferred revenue reduction from purchase accounting allows users of our financial statements to better review and understand the historical and current results of our continuing operations. • Amortization of acquired technology and intangible assets . We provide non-GAAP information that excludes expenses related to purchased technology and intangible assets associated with our acquisitions.
We derive the majority of our revenues from subscription fees for the use of our solutions hosted in either our data centers or with cloud-based service providers, transactional revenue from bill-pay solutions, and revenues for professional services and implementation services related to our solutions. We recognize the corresponding revenues over time on a ratable basis over the customer agreement term.
We derive the majority of our revenues from subscription fees for the use of our solutions hosted in either our data centers or with cloud-based service providers, transactional revenue from bill-pay solutions, revenues for professional services and implementation services related to our solutions and certain third-party related pass-through fees.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+2 added−0 removed6 unchanged
Biggest changeNonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Biggest changeAs inflation has accelerated in the U.S. and globally, we continue to monitor all inflation-driven costs, regardless of where they are incurred. I f our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.
If overall interest rates fell by 10% in 2022 or 2021, our interest income would not have been materially affected.
If overall interest rates fell by 10% in 2023 or 2022, our interest income would not have been materially affected.
Foreign Currency Risk As of December 31, 2022, our most significant currency exposures were the Indian rupee, Canadian dollar, British pound, and Australian dollar. As of December 31, 2022, we had operating subsidiaries in India, Canada, the United Kingdom and Australia.
Foreign Currency Risk As of December 31, 2023, our most significant currency exposures were the Indian rupee, Canadian dollar, British pound, Australian dollar and Mexican peso. As of December 31, 2023, we had operating subsidiaries in India, Canada, the United Kingdom, Australia and Mexico.
As of December 31, 2022, we had an outstanding principal amount of $327.2 million of 2023 Notes and 2026 Notes, which each have a fixed annual interest rate of 0.75% and an outstanding principal amount of $350.0 million of 2025 Notes with a fixed annual interest rate of 0.125%.
As of December 31, 2023, we had an outstanding principal amount of $304.0 million of 2026 Notes, with a fixed annual interest rate of 0.75% and an outstanding principal amount of $191.0 million of 2025 Notes with a fixed annual interest rate of 0.125%.
Added
Our inability or failure to do so could harm our business, financial condition and results of operations. 80 Table of Contents Item 8. Financial Statements and Supplementary Data. The information required by this item is incorporated by reference to the consolidated financial statements and accompanying notes set forth on pages F-1 through F-38 of this Annual Report on Form 10-K.
Added
Item 9. Change in and Disagreements With Accountants on Accounting and Financial Disclosure. None.

Other QTWO 10-K year-over-year comparisons