Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings Second Quarter 2022 Financial Results Conference Call. This conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Josh Yankovich, Head of Relations.

Thank you, Operator. Good morning, everyone. And thank you for joining us for our second quarter 2022 conference call. With me on the call today are Matt Flake, our CEO; David Mehok, our CFO; and Jonathan Price, our Executive Vice President of Emerging Businesses, Corporate and Business Development. This call contains forward-looking statements that are subject to significant risks and uncertainties, including with respect to our expectations for the future operating and financial performance of Q2 Holdings. Actual results may differ materially from those contemplated by these forward-looking statements, and we can give no assurance that such expectations for any of our forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in our periodic reports filed with the SEC, copies of which may be found on the Investor Relations section of our website, including our quarterly report on Form 10-Q to be filed this week and subsequent filings, and the press release distributed yesterday afternoon regarding the financial results we will discuss today. Forward-looking statements that we make on this call are based on assumptions only as of the date discussed. Investors should not assume that these statements will remain operative at a later time and we undertake no obligation to update any such forward-looking statements discussed in this call. Also, unless otherwise stated, all financial measures discussed on this call will be on a non-GAAP basis, a discussion of why we use non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most comparable GAAP measures is included in our press release, which may be found on the Investor Relations section of our website and our Form 8-K filed with the SEC yesterday afternoon. Let me now turn the call over to Matt.

Thanks, Josh. I will start today's call by reviewing our second quarter results and highlights from across the business. I will then hand it over to Jonathan to provide more insights into our Emerging Businesses activity. David will then discuss our financial results and second half outlook in more detail. In the second quarter, we generated non-GAAP revenue of $140.5 million, up 13% year-over-year and 5% sequentially. We also added approximately 500,000 users to our digital banking platform, a year-over-year increase of 7%. That brings us to approximately 20.2 million total registered users. During the second quarter, we signed a mix of Tier 1 and 2 institutions across digital banking and lending, including one of the largest digital banking deals we have ever signed. In our Emerging Businesses, the quarter was highlighted by the announcement of Q2 Innovation Studio's partnership with Rocket Mortgage, continued execution in adding new financial institutions and partners to the ecosystem, and signing a large lending customer within Helix, all of which Jonathan will unpack shortly. Finally, we recently released our second Annual ESG report, which outlines our ongoing focus to create a lasting impact on the financial services industry and in our communities. We are proud of the progress that's reflected in the report. With that, I’d like to provide some additional commentary on our sales activity from the quarter. I will start with digital banking, where we landed several net new customers, including one of our 10 largest digital banking deals in company history. This particular win was with a bank that chose to acquire customers exclusively through the digital channel with no brick-and-mortar branch network. Given the importance of digital to this bank's strategy, they conducted a broad and rigorous vendor evaluation. In the end, they selected us for a comprehensive suite of retail solutions including our full digital acquisition suite, retail digital banking, and several ancillary digital banking products. They also signed in Q2 Innovation Studio as a key driver of their decision for its ability to generate non-interest revenue, drive primacy, and expand digital offerings. Even more important in the specific features and functions that drove their decision was how our overall portfolio aligned with this bank's vision. While they are currently prioritizing their retail strategy, their ability to seamlessly expand into small business and commercial, as well as lending and other areas, helps set us apart and creates strong expansion potential with this customer over time. Another important win in the quarter was with a Tier 1 bank, and their story provides a great example of why we believe it was important to launch Q2 Catalyst. Our end-to-end solution set of commercial banking and lending capabilities has been designed with the evolving expectations of commercial users in mind. Commercial user expectations have changed rapidly partly due to the pandemic-driven acceleration to online and mobile banking. Like consumers, commercial users expect their banking relationship to be personalized, convenient, and primarily digital. We are seeing banks and credit unions accelerate their investments in commercial banking and lending technology to help them compete, differentiate, and ultimately more effectively serve and expand commercial client relationships. In this deal, the bank expressed that their legacy commercial banking solution was no longer keeping them competitive in their market, prompting them to invest in modernizing their commercial experience, starting with a new digital banking partner. The bank selected Q2 for commercial and small business digital banking along with business account opening to improve their ability to win and onboard commercial customers digitally. While our commercial digital banking solutions have been recognized as best-in-class on their own, I believe our Catalyst vision, a combined set of tools to help banks like disconnect the entire commercial banking journey, is a key differentiator for Q2. Moving to digital lending, we saw net new and expansion wins across our lending solutions. Among several deals from the quarter was with a Tier 1 bank in Australia; although headquartered there, they have a substantial international footprint and our partnership began with their Canadian business. Our early success with this client in North America is what ultimately led to an opportunity with their primary business in Australia, resulting in the largest loan origination deal we have ever done. In addition to these highlights from our digital banking and lending teams, our Emerging Businesses continued to build on their strong momentum. Now, I want to hand the call over to Jonathan to provide some detail on Innovation Studio and Helix.

Thanks, Matt. I will start with Q2 Innovation Studio, where we have more than quadrupled the size of our fintech ecosystem since launching just a year ago. We are very pleased with the growth and success we have seen with Q2 Innovation Studio over its first year. It is consistently cited as a key differentiator in net new digital banking wins, and we continue to see rapid adoption from existing customers and fintech partners alike. More than 80 fintechs and over 250 banks and credit unions representing more than 50% of our digital banking customer base leverage the Innovation Studio today. In our Investor Day presentation in December, we talked about how we believe this business will expand our total addressable market over time by bringing in technology partners that allow us to extend our platform and address opportunities outside of our current solution set. During the quarter, we finalized an agreement with Rocket Mortgage, the single largest mortgage provider in the country, and adding their solution to Q2 Innovation Studio will provide our bank and credit union customers with the option to embed Rocket Mortgage into the digital banking platform for their account holders. This gives customers fast, easy access to a best-in-class digital mortgage solution that can help them enhance an existing mortgage lending practice or launch a new one altogether. For Rocket Mortgage, this is a valuable opportunity to expand and diversify their go-to-market strategy by adding a large turnkey distribution channel. We are excited to add a market-leading brand like Rocket to our ecosystem and believe this partnership will help Q2 and our customers provide an additional best-in-class digital lending experience and an additional opportunity to generate non-interest fee income. And on the Helix side, our most notable win during the quarter was with a large lending company that represents our first major deal in this vertical. We are seeing alternative lenders increasingly seek out ways to improve engagement and monetize their existing customer bases more effectively, and our Helix platform enables them to build differentiated experiences that drive new sources of revenue into their business models. As we continue to expand into new industries, we believe wins like this will help our sales efforts in these verticals moving forward. Another notable deal during the quarter was a progressive community bank seeking to launch a digital-only brand alongside their traditional business. This financial institution evaluated several options and determined that Helix was the right product fit for their strategy. We believe that over time, an increasing number of traditional financial institutions could start to pursue digital strategies to focus on their target market and differentiate themselves, which would open up another segment of the market. Overall, I am pleased with our Emerging Businesses activity from the quarter, including the impact that Innovation Studio has had just a year in. Across Emerging Businesses, we are continuing to sign strategic deals, launch new programs, and drive adoption. With partnership additions like Rocket Mortgage, we believe Innovation Studio is becoming a differentiated ecosystem in which our customers, partners, and Q2 all can benefit. Thank you. And with that, I’d like to pass the call over to David to discuss our financials.

Thanks, Jonathan. In the second quarter, we continued our focus on operational execution across the business. Revenue results came in towards the high end of our guidance range, and adjusted EBITDA results exceeded the high end of our guidance range. I will begin by reviewing our results for the quarter and conclude with updated guidance for the third quarter and full year 2022. Total non-GAAP revenue for the second quarter was $140.5 million, an increase of 13% year-over-year and 5% sequentially. The year-over-year and sequential growth for the quarter was primarily driven by an increase in subscription revenue resulting from customer go-lives as well as organic growth. Service-based pass-through revenue associated with our Helix business also contributed to the year-over-year and sequential revenue growth observed in the quarter. The sequential growth was also driven by seasonal increases in usage-based revenue attributed to Helix customers related to tax season. Transactional revenue represented 13% of total revenue for the quarter, down from 14% in the prior year period and consistent with the previous quarter. Transactional revenue dollars had a sequential increase driven by our Helix business, which offset a decline in traditional bill pay. Annualized recurring revenue or ARR grew to $615.5 million, up 17% year-over-year and 4% sequentially. The year-over-year and sequential growth was primarily from net new and cross-sale bookings. The sequential growth in the quarter also benefited from increased usage-based revenue from our Helix solutions. While ARR can have limitations as a key performance indicator, we believe it serves as a better barometer for net new and cross-sale bookings given that our backlog metric can be organically impacted by the seasonality of renewal activity. We ended the quarter with approximately $1.4 billion backlog, an 8% increase year-over-year and a sequential decline of approximately $19 million. The year-over-year increase in backlog was largely the result of net new bookings over the past four quarters in addition to renewal opportunities concentrated in the fourth quarter of 2021. As we previously mentioned, in some quarters we will have fewer renewal opportunities, which will impact sequential backlog growth. The number of in-target renewal opportunities remained lower in the second quarter, but we continue to deliver net new and cross-sale bookings as evidenced by the sequential dollar growth of our ending ARR balance. We expect renewal opportunities will remain lower in the third quarter before increasing in the fourth quarter, which is in line with the seasonality we have observed historically. Gross margin for the second quarter was 51.3%, down from 51.9% in the second quarter of 2021 and roughly in line with 51.4% from the previous quarter. The year-over-year decline in gross margin was attributable to direct costs associated with third-party products included in our solutions, an increase in the mix of pass-through revenue, and incremental delivery resources. The sequential decline in gross margin was also driven by an increased mix of lower-margin pass-through revenue associated with some of our Helix customers. Total operating expenses for the second quarter were $67.4 million or 48% of revenue, compared to $57.9 million or 46.6% of revenue in the second quarter of 2021, and $65.7 million or 48.9% of revenue in the first quarter of 2022. The year-over-year percent of revenue increase was predominantly driven by increased headcount in R&D, sales and marketing, travel-related expenses, and marketing programs and events. The sequential decline in operating expenses as a percent of revenue was driven by lower expenses associated with reduced payroll taxes following our Q1 annual bonus payout and annual equity vesting, lower benefit expenses, and an increase in capitalized software impacting R&D. Adjusted EBITDA was $9.7 million, down from $9.9 million in the second quarter of 2021 and up from $8.1 million in the previous quarter. Our adjusted EBITDA results, which exceeded the high end of our guidance, were driven partially by lower benefits expenses resulting from reduced claims activity for healthcare. We ended the quarter with cash, cash equivalents, and investments of $399.3 million, down from $413.7 million at the end of the first quarter. Cash used in operations for the second quarter was $9.8 million, driven largely by an increase in accounts receivables associated with the timing of some large annual invoices from some of our bigger customers. We generated a negative free cash flow in the quarter of $16.2 million. The normalization of working capital timing in the second half of the year is expected to result in positive cash flow from operations and free cash flow over this period. Let me wrap up by sharing our third quarter guidance and reiterating our previously provided full year guidance. We forecast third quarter non-GAAP revenue in the range of $145.8 million to $147.8 million. We are reiterating our full year non-GAAP revenue guide to the range of $577.5 million to $581.5 million, representing year-over-year growth of 15% to 16%. We forecast third quarter adjusted EBITDA of $6.2 million to $8.2 million and reiterating our full year 2022 adjusted EBITDA guidance of $41.4 million to $44.4 million, representing 7% to 8% of non-GAAP revenue for the year. As a reminder, the customers associated with bookings in the back half of 2021 are scheduled to be implemented in the back half of this year. Once those customers are installed and begin revenue recognition, we expect to see revenue and EBITDA acceleration exiting the year, which is reflected in our full year guidance. In summary, we delivered better-than-expected adjusted EBITDA results for the second quarter and reiterated our full year guidance for both revenue and adjusted EBITDA. Looking ahead, we will be closely monitoring the impacts of the broader macroeconomic conditions on our customers while placing an emphasis on prudent cost management to optimize the long-term value of the business. With that, I will turn it back over to Matt for closing comments.

Thanks, David. In conclusion, the first half of the year was highlighted by broad-based product adoption in our digital banking and lending solutions, as well as the announcement of key programs and partnerships for our Emerging Businesses, allowing us to engage in strategic verticals we haven’t previously served. While we are excited about what’s going on inside the business, we are also monitoring the potentially challenging macroeconomic environment and the impact it may have on our customers and our operations. As we begin planning for the year ahead, we will continue to closely monitor market conditions and proactively adjust as conditions warrant, while prioritizing long-term value for our stakeholders. With the durability of our business model, we believe we are well-positioned to weather a potentially tougher climate ahead and that financial institutions have many reasons to continue to prioritize the digital transformation with a proven partner like Q2. Thank you. And with that, I will turn it over to the Operator for questions.

Thank you. We will take our first question from Andrew Schmidt at Citi.

Hey, guys. Good morning and thanks for taking my questions here. So I want to...

Good morning, Andrew.

Good morning, guys. I wanted to ask about the direction of ARR growth as we head into the back half. Obviously, it relates to the pipeline and deal execution and the fourth quarter is a big quarter. Could you talk about directionally what we should expect for ARR as we exit the back half of next year, and how that might influence your confidence in achieving the acceleration in revenue growth that we outlined for 2023? Any thoughts there would be helpful. Thanks a lot.

Hey, Andrew. Happy to go over that with you. As you know, ARR is something we began disclosing last year. We hope you found it as a useful metric. As we approach the end of this year, one thing we are absolutely anticipating is a continuation of the activity that we saw in the second half of last year regarding bookings strength, as well as the first quarter and second quarter of this year manifesting in go-lives in the second half of this year. So Q3 is going to be the largest go-live quarter that we have had in a while, in fact, more than the entire first half of this year. What you'll see is that revenue ramp in Q4, because you have a full quarter of those go-lives there. The ARR number that you will see going through the year should continue to grow sequentially as we get to Q3 and Q4, and you can model that out effectively. We are monitoring M&A closely. We spoke about how encouraged we are by the activity there. Over the last 18 months, over 150 of those opportunities have involved a Q2 customer, and we are on the winning side of that, our customers winning over 90% of them. However, the regulatory approval process has taken longer than we expected, with dozens of these now hung up in the approval process, most of which are larger opportunities with more revenue attached to them. That’s something we will continue to monitor closely as we proceed over the next six months.

I see. So while you might be on the winning side, you could see some lumpiness in the M&A environment if these deals come through when the conversion happens at some point, later this year or next year, that's the right way to think about it?

Yeah. Andrew, this is Matt. That is accurate. The other thing that gets held up in these opportunities, big or small, if you are in the middle of waiting for approval or conversion, it freezes your ability to buy new products, so your cross-sell gets hit a little bit. But the bigger point is that the holdup in these larger banks that we are waiting to get approval on is important, because they impact our ability to get conversions and subsequently become larger customers.

Got it. That’s helpful, Matt. Thanks for the clarification. If I could sneak just one more in. The obvious question on the macro backdrop, you mentioned being cautious. I want to clarify, are you seeing anything in the decision-making process or in the customer base that leads you to believe there is a slowness in decision-making or that the deal cycle is slowing? Or is it just being proactive on your front just in case, being prudent in case a slowdown is expected? I'm just curious about that aspect. Thanks a lot.

Yeah. It is being prudent. If you look at the data, in the first half of the year, demos were up, RFPs were up, and overall activity is up. I feel positive about the sales pipeline for the back half of the year. We see a lot of great opportunities with Tier 1, Tier 2, and Tier 3 banks and credit unions lending and digital banking. The only challenge with the macro environment is if you speak to the CEOs of banks and credit unions, it’s really simple: inflation stays up, rates continue to rise, and if unemployment goes up, we will have charge-offs, affecting banks' operations. So no matter how critical digital transformation is, the profitability of the entity is paramount. Those are the factors we are watching closely. With that, we are seeing demos up, RFPs up, and year-over-year sales cycles are down somewhat, although a bit elongated sales cycle in Q2 has led to closing some deals already. We have more opportunities coming as well. But I want to stress that we may not have an elongated sales cycle at this point; it's something we are monitoring closely. We have experience growing throughout various cycles, and our customers are risk-averse, which is why they have sustained for over a century.

Got it. Thank you for your comments. I appreciate it, guys.

Thanks, Andrew.

Thanks, Andrew.

We will go next to Alex Sklar at Raymond James.

Thanks. Following up on that, Matt, what are your thoughts on the optimism coming out of the back half of the year? The pipeline was up, I think, twofold last quarter. In terms of later-stage opportunities, are you still seeing that kind of growth through the second quarter here?

Yes. We are still seeing strong pipeline growth. As I mentioned earlier, the first half of 2021 wasn't strong overall; however, comparing the last four quarters, our demonstrated performance in demos and RFPs continues to improve. Our products resonate effectively, whether it's retail, commercial, or lending products, as well as risk and fraud solutions—the interest is significant among prospects and customers.

Okay, great. And a follow-up for Jonathan, regarding Helix wins in the quarter, can you provide some context on the pipeline impact there from the macro side, in terms of customer appetite for continuing to market existing products they have already booked?

Yeah. That's a great question. Over the first half of this year, we noticed a shift in mindset towards profitability within our existing customer base. This doesn't mean they are not spending on marketing; it just means they are focusing on driving profitability through engagement with their most active users rather than adding the next incremental user. As for demand and outlook for Helix, our pipeline remains strong. Wins like this open new verticals, which is exciting because it provides reference points. The desire to embed financial services persists, offering us exciting opportunities to execute.

Great color. Thank you all.

Thanks, Alex.

Thanks, Alex.

Our next question comes from Pete Heckmann at D.A. Davidson.

Hey. Good morning. Thanks for taking my questions. Just want to follow up on these numbers. With ARR, we've seen nice growth here over the last four quarters, running high-teens to low 20s. Even acknowledging some of the macro uncertainties, it looks like based on your activity, if it continues in the back half, we might get revenue acceleration from this year's levels in 2023. Is that a fair assessment?

Yeah. Pete, we are getting ready to kick off our FY 2023 planning process, which involves understanding the macroeconomic environment affecting our projections. As we work through the inputs and continue to assess projections for 2023, we will provide better insights towards the end of the year and into next year.

Okay. Shifting to digital lending, you did a great job with the Australian Tier 1 bank this quarter. Can you talk about the sources of growth there and how you have expanded your footprint in terms of the number of institutions or domestic versus international growth?

Thanks, Pete. If we look at the expansion since the acquisition of Cloud Lending in Q4 2018, we see growth originating from multiple levels—across consumer, small business, and leasing sectors, all seeing growth upwards of 25%-30%. Our integration of the PrecisionLender product enhances our capacity for pricing and onboarding customers. The European market remains challenging for reasons including the pandemic and resulting geopolitical instability, while Australia has been a strong market. Our lending solutions continue to develop, and the team maintains a disciplined approach to product construction, positioning ourselves well for the digital transformation in lending.

Thanks for your insights.

Thanks, Pete.

We will go next to Parker Lane at Stifel.

Hi, guys. Thanks for taking my question. I found the digital-only brand deal on the Helix side quite interesting. Could you provide context on the scale of that opportunity—how many banks are considering this route and how large that opportunity could be in the coming years?

We are seeing more interest in digital-only banking initiatives throughout 2022, reflecting a significant strategic interest among financial executives. The separation between financial institution executives and their sales organizations serves to drive this interest toward attracting younger demographics through digital-only avenues. However, there are operational concerns due to a disparity in the core infrastructure they usually use, which we aim to bridge with Helix's capabilities in the cloud-based arena. Ongoing market dynamics prove our strategic value in catering to this segment, and we expect more regional and community financial institutions to embrace digital-only models.

Thanks. Can David provide more color on the decline in traditional bill pay during the quarter? Was that simply due to seasonal factors? Additionally, how should we assess the transactional business in the context of an uncertain economy?

Yes, Parker. We closely monitor the bill pay business. It performed below our expectations in the first half overall, and we will continue to keep an eye on that in the second half. The transactional business is a key variable we will address during our FY 2023 planning process as well.

Got it. Thanks again.

Yeah.

We will next hear from William McNamara at BTIG.

Hi. This is Matt VanVliet. Looking at the digital-only banks announced on the digital lending side, is there a difference in pricing structures or the expected user base compared to a traditional bank’s digital offering?

That's a good question. Digital-only banks involve a unique partnership dynamic, as these start-ups often require time to grow, which means that we must evaluate their ownership structure. This necessitates a flexible pricing model in the early stages; we are essentially both betting on the potential of these start-ups. This arrangement contrasts with existing banks having a user base and therefore established minimums for pricing. However, for new banks, we have extensive tools for digital acquisition and onboarding to facilitate growth, making our partnership appealing.

Very helpful. Regarding large deployments, do you feel concerned that they might elongate the process due to macro uncertainties, or do you believe they are well-positioned for execution?

No, the net new signings from last year and this year are on track for implementation. We have numerous customers in the M&A pipeline held up by regulatory issues. While awaiting approval affects conversion, our delivery team is adept at maintaining schedules, especially for go-lives scheduled in Q3 and Q4.

Thanks for taking my questions.

Thanks, Matt.

We will go next to Terry Tillman at Truist.

Great. Thanks for taking the questions. This is Robert Dee on for Terry. To start, how is employee headcount currently trending, and are you seeing stable retention or is the difficulty in maintaining top talent still prevalent?

Robert, we have invested significantly in our culture and employee sustainability. Our voluntary employee attrition rates are five points below the averages observed in the software sector, indicating that retention is stabilizing. We have also seen a flattening of wage inflation. So, we're pleased with our employee engagement and retention scores.

That's great to hear. One follow-up, if I may, on the macro environment—how do you see demand differing across Tier 1 banks, Tier 2 banks, and the fintechs you serve?

Concerns are similar among Tier 1s and Tier 2s. We have several enterprise customers through PrecisionLender. The rising rates create a complex lending environment, and PrecisionLender becomes essential in addressing that. The sentiment is parallel between Tier 1s and Tier 2s. They are assessing the repercussions of inflation, rates, and unemployment on their businesses, which makes them cautious in decision-making.

Okay, great. Thanks for the insights.

Thanks, Robert. Appreciate it. Have a good day.

We will go next to James Faucette at Morgan Stanley.

Hi, this is Michael Fontem for James. Can you help me unpack the Rocket Mortgage process? I imagine it was highly competitive. How were you able to win that deal?

Thanks for the question. It’s a long time coming, and it’s a great brand for us. We capitalized on the differentiation of our software development kit and platform, alongside its openness and ease of use. Both sides recognized the strategic benefits, and we are excited to embed Rocket’s brand into our ecosystem.

On backlog, could you provide a breakdown geographically and insights on elongation of sale cycles in Europe compared to other regions?

The backlog composition shows little contribution from Europe. We will continue to monitor the decision-making timelines and delays attributed to regulatory pressures affecting Europe, as they have not improved significantly after the past couple of years.

Great, thanks very much.

Thanks.

Thanks.

We will go next to Bob Napoli at William Blair.

Hi, good morning, guys. Sandeep Chowdhary on for Bob Napoli. I wanted to ask about the competitive landscape. Are you observing shifts in competitive intensity when pursuing digital banking deals, and is Innovation Studio a key reason customers are choosing Q2?

The competitive environment remains robust, particularly in retail digital banking. We are competitive across all tiers, maintaining consistent win rates throughout. Innovation Studio, Q2 Catalyst, and our product depth serve as differentiators for customers in selecting our solutions.

Thanks for the clarification. On capital allocation and M&A, what is your appetite given some compressed valuations in the market?

In terms of market activity, the second quarter was exceptionally quiet for inbound opportunities compared to past years. We expect market activity to increase, but the second quarter did not reflect this, possibly due to delayed reactions to recent trends in public markets. Our focus areas for potential assets continue to be in the realm of digital wealth, digital insurance, risk, and compliance—the segments we talked about previously.

Thank you.

Thank you.

We will go next to Charles Nabhan at Stephens.

Good morning, and thank you for taking my question. I appreciate the color on gross margin for the quarter. Can you walk us through what we should expect regarding cadence, as well as potential headwinds and tailwinds for the second half of the year?

Sure, Chuck. Our gross margin profile should improve slightly in the second half of the year, notwithstanding pressures during Q3 due to large implementations, which typically lead to short-term margin pressures. However, Q4 should present an uptick as we exit the year with favorable overall margins.

Got it. Regarding the long-term 60% gross margin target, can you share any catalysts or tailwinds that may accelerate that, especially regarding higher-margin cross-selling activity?

Long-term, we have previously mentioned several factors that could drive profitable growth. Opportunities for mixing our business towards higher-margin areas, like Innovation Studio, will enhance our competitive leverage over several years. The Helix business is transitioning toward a higher-margin transactional model, and scaling globally will enhance our overall cost structure and subsequently boost gross margins.

Thank you for the insights.

Thanks, Charles.

We will move next to Joe Vruwink at Baird.

Great. Hi, everyone. Looking back over the last two years, do you see the level of activity skewing more towards retail offerings? Are commercial opportunities becoming more prominent, indicating a potential shift back toward that focus?

If I understand your question correctly, the credit unions have always focused on consumer offerings. We have built a practice around credit unions and small business capabilities. In the commercial space, we have established a comprehensive solution covering retail, small business, and commercial by building these capabilities into a single platform. The urgency to offer digital solutions in commercial banking is evident. Q2 Catalyst is essential for us as we present ourselves to Tier 1 banks with larger commercial portfolios. This combination is fueling our growth, and we expect continued emphasis on commercial solutions in response to evolving market needs.

Are you observing a proportional increase in commercial opportunities within your pipeline?

Yes, we are indeed witnessing a growing proportion of opportunities within our commercial offerings. As perceptions adjust, we are confident in positioning ourselves ahead of this shift.

Great. Thank you.

Thank you, Joe. I appreciate it.

And that does conclude the question-and-answer session and today’s conference call. We thank you for your participation. You may now disconnect.