Good day, everyone. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings First Quarter 2023 Financial Results Conference Call. 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, Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for our First Quarter 2023 Conference Call. With me on the call today are Matt Flake, our CEO; David Mehok, our CFO; Jonathan Price, our Executive Vice President of Emerging Businesses, Corporate and Business Development; and our newly appointed President, Kirk Coleman, who will join us for the Q&A portion of the call. 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 and for the financial services industry. Actual results may differ materially from those contemplated by these forward-looking statements, and we can give no assurance that such expectations or 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 filed today and subsequent filings and the press release distributed this 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 in our Form 8-K filed with the SEC this afternoon. We have also published additional materials related to today's results on our Investor Relations website. Let me now turn the call over to Matt.

Thanks, Josh. On today's call, I will share our results and highlights from the first quarter. I'll then hand it over to Jonathan to provide more insights into our emerging businesses activity before David discusses our financial results and guidance in more detail. However, before I dive into the quarter, I wanted to spend a few moments sharing our high-level perspective on the regional and community banking space. Over the past two months, we have spent a lot of time with our customers. We partner with a diverse mix of banks and credit unions that represent many different geographies and sizes, and in general, the vast majority of them report that they believe their businesses to be healthy and that they have not been meaningfully impacted by the recent challenges affecting a select number of banks, which aligns with the survey results and research findings that others in our sector have cited in recent calls. Moreover, we believe that banking is going to continue to be done digitally, and the financial institutions will continue to invest in upgrading their technology to compete in their markets and serve their customers more efficiently. In this environment, where retaining customers and deposits are at a premium, technology is especially critical, and we believe we have built a best-in-class digital banking platform designed to help financial institutions win, retain, and grow deposits across both retail and commercial lines of business, all from a single system. We're seeing strong demand and sales execution to support these beliefs. We've had two record sales quarters in a row. We had our best ever win rates in the first quarter. We accelerated subscription revenue growth, and our pipeline remains healthy. With that said, we're seeing some of our larger financial institution customers further tighten spending on discretionary services in addition to what we noted in the February call, as they move to a more conservative financial position following recent events. As a result, we have updated our guidance to reflect some incremental pressure on our services revenue as well as the potential impact to our results associated with First Republic Bank which, as we disclosed last week, represented 2.5% of our revenue in 2022, the majority of which was professional services driven. Now let me jump into the results from the first quarter. We delivered strong growth in subscription revenue, which was up 19% year-over-year. As a reminder, subscription revenue, which is driven by our long-term contracts, is highly predictable and our largest and highest-margin revenue category. Therefore, we believe it is an important barometer of the health and outlook of our business. In total, we generated non-GAAP revenue of $153.1 million, up 14% year-over-year and 4% sequentially. And on top of accelerated subscription revenue growth, we delivered increased profitability results with adjusted EBITDA of $16.5 million or 11% of revenue. In recent months, we've talked about managing the business with an increased focus on profitability, and our adjusted EBITDA results from the quarter underscore our ability to continue executing on that strategy. On the sales side, we drove strong bookings growth for the second straight quarter and had our best digital banking bookings quarter ever. We delivered record win rates across a broad mix of deals, large and small, bank and credit union retail, small business and commercial. I'm proud that almost 20 years into this business, we're still winning on innovation, user experience, and our single platform approach. We continued to win upmarket, signing three new Tier 1 digital banking customers including two top 100 US banks and a top 100 US credit union. One of these deals highlights the value of our single platform approach. The bank came to us for small business banking but upon seeing the rest of our portfolio, purchased the whole suite from retail to small business, to commercial and more, making this a top five all-time deal in terms of ARR. In my view, the current focus on deposit growth is partially responsible for such a strong sales quarter. It's driving increased demand as prospects look to upgrade from legacy technology in order to win new customers and retain deposits. Our platform gives them a single, efficient, best-in-class solution with which to do that. This focus on deposits is also generating interest in our relationship pricing solutions, where we believe we have a strong second-half pipeline. This is because, in addition to pricing new loans, financial institutions use these solutions to get the most out of their existing portfolios and more effectively price services on the deposit side of their commercial relationships. In total, our sales execution and strong financial results from the quarter underscore why we remain confident about the fundamentals of our business. Demand is strong. We're competing better than ever. We are accelerating subscription revenue growth, and we are demonstrating our ability to drive improved profitability. And finally, before I turn the call over to Jonathan, I wanted to pause and congratulate Kirk Coleman, who we recently promoted to President. Kirk spent his early career at Accenture, where he specialized in banking and digital transformation. He began his journey with Q2 as an executive at one of our large regional bank customers. In December 2021, he joined our team as Chief Banking Officer, where he has overseen our product, marketing, and strategy functions. In that time, he's brought a deep empathy and understanding of our customers' businesses and the financial services industry to Q2 and has played an instrumental role in interfacing with customers and guiding our teams. In his role as President, he will become responsible for scaling the operations of this business from sales and customer relationship management, to product development, delivery, and support. While I remain focused on areas like culture, strategic direction, and discussions with key customers, prospects, and investors, I'm excited about his skill set, his passion, and his deep management experience, and I look forward to partnering with him to capitalize on the opportunity in front of us. I'd now like to turn the call over to Jonathan, to provide updates and highlights from the first quarter for our emerging businesses.

Thanks, Matt. I'll start with Q2 Innovation Studio, which has continued to see strong adoption from both partners and customers. When we launched, our vision was to create a best-in-class partner ecosystem that would allow third-party technology to easily integrate into our digital banking platform and, in turn, give our customers the ability to seamlessly add those partners into their digital channel in a fraction of the time of traditional delivery. In doing this, Q2 Innovation Studio will provide financial institutions the ability to save costs associated with traditional technology partnerships, add solutions that drive noninterest fee income, and ultimately drive deeper, broader engagement with our account holders. Today, we are several steps towards achieving this vision. We have driven customer adoption, with more than 300 of our digital banking customers, representing approximately 16 million users, now leveraging Q2 Innovation Studio, and we have scaled the partner ecosystem with more than 120 available technology partners. The last piece of the model is end-user adoption, and in the past 12 months, we've more than doubled the number of users actively using our partner solutions, driving high-margin revenue to Q2. That said, we believe we are still in the early innings of end-user adoption. We are pleased with the progress to date and are seeing Q2 Innovation Studio drive real, meaningful outcomes for our customers. Take the story of a roughly $500 million bank in Tennessee. To differentiate themselves in their market, they set an aggressive innovation roadmap but couldn't deliver against it quickly enough through conventional delivery channels, and like many regional community financial institutions, lacked the technology resources to take on the work themselves. In the last 12 months, the bank has added six new solutions using Q2 Innovation Studio's partner ecosystem from credit scoring to a residential mortgage offering to an AI chatbot. They have told us they expect to drive over $1 million in combined revenue and cost savings from these solutions in 2023 alone, further strengthening their relationship with their customers and with Q2. In this environment where financial institutions are looking for ways to deliver innovation more efficiently, retain and grow customers and deposits, and uncover new revenue opportunities, Q2 Innovation Studio provides an especially compelling value proposition. Because of this, we believe it's a key reason we're seeing record win rates in digital banking. As has been the case for several quarters, Q2 Innovation Studio was cited as the key reason we won in a majority of our digital banking deals. This quarter, it was cited in roughly 75% of our wins. Moving to Helix, we had another strong quarter of renewal activity, signing two of our largest customers to multiyear deals. With these renewals, nine of our 10 largest customers have signed multiyear extensions with us in the past 18 months. Multiyear renewals such as these demonstrate the confidence our customers place in us and provide an important base as we seek to grow and drive improved profitability of Helix in the years ahead. The current backdrop is creating opportunities to deepen and grow our relationships. The flexibility of our technology and our deep direct partnerships with our sponsor banks help us move quickly to support our customers as their goals and operating environments change. For example, during the quarter, we worked closely with one customer who, after March 9th, needed to quickly connect certain capabilities to an alternative bank. We helped them find a solution and leverage Helix technology to solve their problems inside of 24 hours, and we added roughly 300,000 new users in the process. As far as the demand environment, we believe we have a solid pipeline for the remainder of the year, and companies in our target markets remain committed to pursuing embedded finance strategies. With the current prioritization of customer retention and deposits across the financial services landscape, embedded finance is a powerful way for customers and partner banks to grow deposits, and Helix has a proven differentiated offering that's already supporting more than 14 million end users across our customer base. Thank you, and with that, I'll pass the call to David to discuss our financial results and guidance in detail.

Thanks, Jonathan. At the start of the year, we communicated our focus on delivering accelerated growth in subscription revenue coupled with a meaningful improvement in adjusted EBITDA and cash flow. We're extremely pleased with the progress we made on these priorities in the first quarter as we increased the growth rate of our subscription revenue and built on our bookings momentum with a record performance in digital banking. We delivered better than expected revenue and adjusted EBITDA in addition to generating better-than-expected cash flow from operations for the first quarter of the year. We also took proactive action to reduce our total debt balance through the repurchase of $171 million of long-term convertible debt at a meaningful discount to face value, reducing our total face value of debt by approximately 26%. With that, I'll begin by reviewing our results and conclude with updated guidance for the second quarter and full year of 2023. Total non-GAAP revenue for the first quarter was $153.1 million, an increase of 14% year-over-year and up 4% sequentially. The year-over-year and sequential increases for the quarter were primarily driven by growth in subscription-based revenue, which was up 19% year-over-year and 7% sequentially. The year-over-year acceleration in subscription revenue growth was primarily attributable to the deployment of new digital banking customers. In addition, the year-over-year and sequential acceleration in subscription revenue growth was driven by incremental revenue associated with cross-sold solutions and organic growth. Our subscription revenue for the quarter was 75% of our total revenue, up from 72% of total revenue in the prior year period and 74% of total revenue in the previous quarter. Due to the strength we've observed in our subscription-based bookings, we continue to expect our full year 2023 subscription revenue will accelerate from the growth we observed in 2022. The strength in subscription revenue was partially offset by continued weakness in services and transactional revenue. Services revenue was up 5% year-over-year while transactional revenue was down 5% year-over-year. As Matt mentioned, we believe developments over the past couple of months will result in lower professional services revenue than anticipated for the remainder of the year. As a result, we're modifying our expectations for professional services engagements associated with projects that are more discretionary in nature, which I will further discuss with our updated guidance. Transactional revenue represented 11% of total revenue for the quarter, down from the prior year period of 13% and consistent with the previous quarter. Both the year-over-year and sequential decline in transactional revenue are in line with the trends we started to observe in the back half of 2022. During the quarter, we added approximately 400,000 users to our digital banking platform ending the quarter with approximately 21.5 million registered users, an increase of 9% year-over-year. The year-over-year and sequential increase was largely driven by organic user growth. Annualized recurring revenue or ARR grew to $672.7 million, up 13% year-over-year. Our subscription ARR growth for the quarter was up 17% year-over-year, driven largely by net new deals within our digital banking business and indicating continued strength in this important part of our business. Within ARR, the growth in subscription revenue was partially offset by a decline in transactional revenue and a moderation of growth in services, driven by lower professional and consulting services. Our ending backlog of over $1.5 billion increased by $38 million sequentially, or 3%, and equated to a 10% increase year-over-year. The year-over-year increase was attributable to strength in net new bookings, including our largest ever digital banking bookings quarter. The sequential increase was also driven by strong renewal performance. As we mentioned previously, while sequential change in backlog may fluctuate quarter-to-quarter based on the number of renewal opportunities available within a given quarter, we continue to believe we will show an increase in backlog for the full year. Gross margins were 54% for the first quarter, up from 51.4% in the prior year period and 51.5% in the previous quarter. The year-over-year and sequential improvement in gross margin was driven primarily by a favorable mix in revenue towards our higher-margin subscription-based business in addition to cost efficiencies within our delivery and support operations. As a reminder, we had a mutual contract termination in the fourth quarter of 2022 which negatively impacted gross margins by 150 basis points for that time period. Total operating expenses for the first quarter were $72.5 million or 47.4% of revenue compared to $65.7 million or 48.9% of revenue in the first quarter of 2022 and $72.7 million or 49.5% of revenue in the fourth quarter of 2022. The decrease in operating expenses as a percent of revenue was driven primarily by improved cost scaling to revenue within sales and marketing as well as additional cost efficiencies realized in our research and development expense through the effective utilization of our global workforce and enhanced productivity. The sequential decline of sales and marketing as a percent of revenue was also a result of a decrease in marketing events when compared to the fourth quarter of 2022. In May, we will have the return of our in-person annual client conference, CONNECT, where we will have over 1000 guests from our customers and partners in attendance. This event will incur additional sales and marketing expenses of almost $2 million in the second quarter and is reflected in our second quarter guidance. Total adjusted EBITDA was $16.5 million for the first quarter, up from $8.1 million in the prior year period and $8.4 million in the previous quarter. The year-over-year and sequential change in adjusted EBITDA saw a meaningful benefit from the improved mix of higher-margin subscription revenue and cost-effective utilization of our global workforce broad-based efficiencies across the organization with the sequential change also benefiting from lower contract-related expenses. We ended the first quarter with cash, cash equivalents and investments of $271.7 million, down from $433.4 million at the end of the fourth quarter. The decrease in cash was primarily a result of the use of over $149 million for the privately negotiated repurchase of approximately $171 million of convertible debt. In addition, we paid the remaining $11 million in principal amount of our convertible debt which matured during the first quarter of 2023. While our first quarter typically reflects a use of cash from operations, based on the timing of our annual bonus payout, in the first quarter of 2023, we generated positive cash flow from operations of $3.9 million due to improved profitability and strong working capital management. We believe our continued focus and actions driving higher profitability and working capital management will translate into continued strength in our cash flow conversion for the remainder of the year. Let me wrap up by sharing our second quarter and updated full-year guidance. We forecast second quarter non-GAAP revenue in the range of $153.1 million to $155.1 million. And full-year non-GAAP revenue in the range of $618 million to $630 million, representing year-over-year growth of 9% to 11%. As I mentioned previously, while we continue to expect an acceleration in full-year subscription revenue growth as compared to the prior year, our updated full-year guidance reflects a reduction in our expectations with respect to lower-margin discretionary services revenue, which has an immediate revenue impact. We forecast second-quarter adjusted EBITDA of $14 million to $16 million, and full-year 2023 adjusted EBITDA of $67 million to $71 million, representing approximately 11% of non-GAAP revenue for the year. We've raised our full-year adjusted EBITDA guidance because we believe that despite expected revenue headwinds within services revenue, our increased mix of higher-margin subscription revenue streams combined with cost and efficiency initiatives implemented over the past few quarters will generate adjusted EBITDA results exceeding our prior expectations. In summary for the first quarter, we delivered revenue and adjusted EBITDA results above our expectations and an acceleration in subscription ARR driven by record digital banking bookings. We generated positive operating cash flow in what's typically a seasonally challenged quarter for us and reduced our debt balance primarily through the repurchase of convertible debt at a meaningful discount. We're revising our revenue to incorporate lower discretionary services revenue concentrated in a few larger customers, and we continue to remain confident that the increasing contribution of subscription revenue and improving cost efficiencies will allow us to continue to deliver sustained growth and margin expansion in 2023 and beyond. With that, I'll turn the call back over to Matt for his closing remarks.

Thanks, David. In closing, I want to reiterate my confidence in our business, our products, and our ability to drive long-term value creation. Despite the disruptions in the banking space, we continued to drive acceleration in subscription revenue growth and delivered strong non-GAAP profitability results. We also had a record first quarter in terms of digital banking bookings, building on our momentum from a strong second half of 2022. In this environment where financial institutions are focused on customer retention and growing deposits, we're seeing record win rates and levels of demand for our digital banking solutions, which are proven to help financial institutions win and retain new customers. I also want to emphasize my confidence in the long-term importance of regional and community financial institutions. There have always been big banks, but community-focused banks and credit unions have always offered agility and localized products and services that set them apart. Today, by being able to level the playing field with technology, I believe they are as viable, competitive, and crucial as they've ever been. Community banking is integral to our economy and our way of life. We expect that to remain true long past what we believe will be a temporary disruption we're seeing in the market, and our products have never been more important to our customers than they are right now. Thank you. And with that, I'll turn it over to the operator for questions.

We'll take our first question from Alex Sklar with Raymond James.

Great. Thank you. Matt, another really nice subscription bookings quarter. I just want to start with the demand environment broadly and specifically the linearity of bookings in the quarter kind of before versus after the kind of early March, some of the bank failures. I know bookings are normally back of the quarter weighted but anything to flag in terms of percent of bookings that came in the final few weeks of March versus historical? Thanks.

Sure. I’ll address the question about bookings. Thank you, Alex. Thirty-five percent of our bookings occurred after March 10, which was the date of the Silicon Valley Bank situation. This indicates that momentum has continued, supporting our positive comments on the demand environment. We experienced record digital banking bookings in the first quarter, building on a strong performance in the fourth quarter of last year and a solid second half of the third quarter. Overall, we have had two and a half quarters of impressive bookings, and our demand pipeline remains robust. RFP activity has increased by 40% compared to both the previous quarter and last year, reflecting a significant interest in our products. Many of our prospects are now customers who have opened accounts at other banks due to the insured account situation, which has allowed them to see the technology of the larger banks. As they compare it with their legacy systems, they are returning to us expressing the need for a modern platform compatible with mobile and tablets, offering comprehensive functionality for retail, small business, and commercial banking. This shift is generating considerable demand for us. It may take some time to fully understand the current context, especially with recent news surrounding community and regional financial institutions, but the demand environment is stronger than it has been in a long time. We are confident in our position, and our win rates are at their highest in a significant period.

That's a really good flag on the Big 4 kind of tech competition driving demand for some of your customers. I guess David just one follow-up for you. I appreciate the color on subscription ARR bookings. That's a good call out. Is there anything that's changing in terms of your ability to hit that kind of Rule of 30 outlook exiting last year just given the change in discretionary revenue?

Not at all, Alex. In fact, one of the things we discussed during our call three months ago was the flexibility in our model. The concepts of Rule of 30 and Rule of 40 clearly provide us with this flexibility, allowing us to adjust either of the metrics based on market conditions and the controllable costs on the other side. We feel confident in our ability to maintain the combined EBITDA and growth rates as we approach the end of 2024. For example, when we initially provided our guidance this year, we anticipated a combined growth of about 21% to 22% for those two metrics. Although we lowered our revenue growth rate due to discretionary services, we raised our EBITDA guidance, keeping us roughly in that same range. This demonstrates our capacity to adjust based on the factors we can control, particularly costs, and we believe we will continue to do so into 2024 and achieve that Rule of 30.

All right. Thank you both for the color.

Thank you, Alex.

We'll take our next question from Andrew Schmidt with Citi Global Markets.

Thank you for taking my questions, and congratulations on your new role, Kirk. It's encouraging to see the resilience in demand. We've considered this a lot too. Could you elaborate on any differences in the demand pipeline and sales cycles based on the type of financial institutions or the asset size of institutions you serve? Additionally, if you could provide some insights into the overall health of your customer base, it seems like you've been in touch with many customers lately. Anything you could share on these topics would be appreciated. Thank you.

Yes. Sure, Andrew. I would also like to welcome Kirk. We are really excited to have him as our President. Right now, it doesn’t matter if you are a Tier 3, Tier 2, or Tier 1 customer. What sets us apart is that those who are thinking about using technology as a means to compete and differentiate are the ones driving demand. Customers who do not have a strategic outlook, or the prospects we are targeting, are not part of the equation. Our focus has always been on those with a strategic vision, and we maintain a long-term perspective in the market. Demand has been robust across all three tiers: Tier 3, Tier 2, and Tier 1. Regarding the health of our customers, we have touched on this previously. All core processors have acknowledged certain edge cases like those related to business model failures in banks or poor management. However, the overwhelming majority of our customers serve individuals, small businesses, and medium-sized businesses. They are Main Street lenders and depositors, and they have not experienced the same issues as some troubled financial institutions. We believe we need to navigate through this storm, after which we will recognize that these customers play a crucial role in the economy. Job growth and entrepreneurship are rooted in their success. We are confident in the health of our customer base, as evidenced by our strong customer ratings. While some edge cases do occur, we feel very positive about our diverse customer base that includes credit unions, banks of various sizes, and a wide range of businesses. Overall, we are optimistic about customer health, though it may take some time for everyone to feel reassured.

Super helpful. Thank you for the commentary, Matt. And then if I could ask about just on the cost side. Great to see the EBITDA performance for the full year despite the top line. It looks like there might have been some cost efficiencies that were accelerated or kind of some better execution there. Maybe just talk about what kind of cost efficiency benefits that are embedded for this year? And then what's the opportunity for just seeing kind of incremental benefit from those? Because I know you do have a number of things going on. Any context there in the cost that would be helpful.

Yeah. Sure Andrew. And this is something that we started last summer. It's not something that we've implemented over the course of the last few months, and we've just been building on a lot of those initiatives that we put in place about nine to 10 months ago. I'll give you an example of some of those that are having the biggest impact. The first is the utilization of global resources in a more effective manner. We're doing that across many areas of the business and we're finding not only is it helping us in terms of our cost profile but it's also helping us in terms of the overall output. We're seeing really high output from the teams that we're utilizing overseas. We're continuing to invest in those areas, and we found it to be highly effective across the board. We've looked at our facilities footprint exiting last year. We've continued to execute on that in terms of reducing the overall footprint. You see about a $3 million, $3.5 million impact this year relative to last year in terms of some of the actions we've taken there. We've gotten more aggressive in terms of our ability to consolidate vendors and drive costs out from a procurement standpoint. And then we're using automation in everything that we possibly can to improve a lot of the processes that we have and, as a result, cut costs. As an example, in our customer care, we're using AI to help us better understand customer behaviors and drive a lot of efficiencies there. So there's a lot of that that's embedded in different areas of the business that are driving incremental areas of productivity, and that's translating into cost. So as we're growing the business, we're not having to add heads. And in some instances, if we have somebody leave the company we'll have to backfill those roles. We feel really good about what we've seen and through the first quarter in terms of our cost profile, and obviously we have confidence that we're going to be able to continue to do the same thing going forward for the next three quarters, which is the result of the increased guidance in EBITDA.

Got it. Thanks so much, David. Appreciate the comments.

We'll take our next question from Terry Tillman with Truist Securities.

Good afternoon. Thank you for taking my question. I appreciate the detailed information and congratulations on the bookings. I’m not sure if this is directed at you, Matt, or Kirk. Will Kirk be able to answer questions if we ask him, or should I avoid putting him on the spot? I just wanted to clarify that before I dive into my questions.

I'm here, Terry.

He can answer your questions.

Okay. All right. I don't know if this is more for Matt right now, but I'll let anyone tackle it or even David. You guys have been discussing these digital banking wins for a while now, particularly in commercial and small business banking. Something is definitely happening here. I know you've been working hard on solidifying that platform for years, but I'm curious if a lot of it involves replacing legacy systems and where you think we currently stand in this process. Also, how far along are you in terms of scaling to larger banks regarding treasury and commercial banking services? I have a follow-up as well.

Yes. I'll comment on the success in small, midsized, and commercial banking. Sometimes I have to remind people that our first line of code that we wrote in 2004 had ACH's, wires, tax payments, and entitlements built into it, but about 12 years ago we made a significant investment in treasury and commercial banking capabilities, which takes you up above small business. What we learned during that process is you can write the software and you can deliver the code, but the experience around delivering the software, converting from legacy systems, providing a support infrastructure around those customers and integrating into systems that are different than retail takes a long time. Since we've gone public in 2014, we've gained more than 75 customers above $5 billion in assets, and we are really moving into that area where we can handle larger commercial customers. That success is about a product that is very difficult to compete within the marketplace. If you're a legacy tech player that hasn't been able to modernize your tech where it works on mobile phones and tablets and has a sleek user interface and also is able to integrate not only the commercial systems but the retail systems, and then if you're down market and you don't have any experience converting a $10 billion, $15 billion, $20 billion bank off these systems, they're not going to take their chance with their crown jewels to go to somebody who's never done it before. We find ourselves in a really unique spot there competing with these legacy players. It's all legacy tech out there on the commercial side, some of it as old as 25 to 35 years. So I feel really good about the demand environment there and doing well. It's a good place to be, and I think you're going to continue to see that success throughout this year and hopefully beyond that.

That's great to hear. And I guess, maybe Kirk to go ahead and put you on the spot then and congrats on the new role. As you've had some time at Q2, what product or kind of market opportunity do you think is maybe least understood or underappreciated? Thank you.

Yeah. Thanks, Terry. I appreciate the congratulations. I'd kind of point to two different things, just to double down on some of what Matt was talking about. The difference between just kind of a regular business account and treasury management services is pretty substantial in terms of the complexity of actually delivering that and scaling it in a way that's really important not just for the largest institutions, but also for small institutions who are serving very specific segments and that sort of thing. It takes a lot of that back to get really good at that because you have to see all the different varieties. We have a really wonderfully diverse set of customers, and so that gives us a lot of different things to work on with them. That builds up over time, and I think that's probably not as appreciated from the outside as what we see on the inside and the amount of investment we've had to make over time. That also bridges over into things like our PrecisionLender product, which is now transitioning fully into both sides of the balance sheet where we have treasury premium pricing capabilities. In this environment, of course, this is just critically important in terms of pricing not just the loans but the deposit relationships. All of those treasury relationships will just kind of remember that on the deposit side of the balance sheet the real money is made when you can charge for treasury services. Getting that really right and being able to customize it particularly for your larger customers is super important. So I think that would be an arena, Terry, that I would point to. I think the amount of R&D that had to go into building those kinds of products is probably not as well understood as we might like.

That's great. Thanks a lot.

Thanks, Terry.

Thanks, Terry.

We'll take our next question from Bob Napoli with William Blair.

Hey. Good afternoon, guys. This is Adib Choudhury on for Bob. Just in terms of the first question, could you just talk a little bit more about that decision, I guess, structurally to break out the President and CEO role? And how we should think about the impact, if any, in terms of Q2's core strategy and go-to-market? Thanks.

Yeah. It won't have any impact on our go-to-market. It's just deepening the leadership bench, opening up the room for more voices and perspectives, which is a valuable thing for us to do at this stage and scale in the company. It's focusing leadership on both the strategic and the operational sides of the business. Execution is critical to us. Our customers want to see it, I want to see it, my board wants to see it, and shareholders do. I think with Kirk laser-focused on the operational side of the business and me working with him to help him in any way I can, along with providing help for me and the team on the strategic side, it was just a natural time for us to do it at this size. I'm excited about having him.

Thanks. Appreciate that. And then, just as a quick follow-up, thinking about capital allocation and M&A, could you kind of talk about your current appetite in the current environment and if you're starting to see more attractively priced assets and things that you potentially may be interested in, in terms of product-oriented capabilities or others? Thanks.

Yes. I mean, it's Jonathan. I would say, we're starting to see the flow of inbound opportunities, but candidly, the quality of the assets and the value expectations aren't where we'd like them to be, or we expect them to be as we get towards the end of this year and into next year. That has taken longer, but to be fair, there's been a lot of other macro events that have occurred that might have delayed that from happening. We are seeing more inbound activity from the corporate development standpoint, but again, nothing that has excited us or got us to a point of action. Candidly, I think we're in a moment in time where we have to be pretty prudent when it comes to capital allocation given the scarcity value of cash, and we have a good amount to be competitive and credible in these discussions. So, we just have to be smart about doing the right deals. That's sort of where we sit today on the corporate development front.

Appreciate the color.

Thank you.

Thanks.

Our next question comes from William McNamara with BTIG.

Hi. Thanks for taking my question. Just kind of wanted to know how you guys are seeing current demand from customers for more automation or AI capabilities?

Kirk, do you want to take that?

Yes. Hi, William, thanks for the question. It's early, right? We're not even in the first inning; we're in the first pitch of the first inning when it comes to kind of where we are in the evolution of AI. We're excited about the potential that it has for positively impacting our business and our products. But having said that, risk management, information security, compliance, and privacy are all really important concerns. So we're looking at all those aspects as we think about how we can move forward. Certainly, it's a conversation we're having with our customers, and I'd say just stay tuned on what some of the possibilities are going to be.

Great. Thank you.

We'll take our next question from Parker Lane with Stifel.

Hi, guys. Thanks for taking the question. Wondering if you could talk a little bit more about the discretionary services spend and the headwinds you're facing there. I think we've talked in the past about back-office automation, staff augmentation, efficiency projects being the areas that people are looking to trim right now. Is it largely the same tune on that front, or are you seeing incremental challenges, different areas and types of project scope of the work coming in and compressing here?

Yes, Parker, you already answered that for me. In staff augmentation efficiency projects, you might incur double costs temporarily, but it will lead to savings over time. When March 10 happened, everyone took a moment to pause and assess discretionary spending. That's the situation. There hasn’t been any change; March 10 introduced a new level of complexity for us. With large customers, this is part of the landscape. However, we are very satisfied with our subscription revenue, and we maintain a positive outlook for that revenue stream. We will navigate through this discretionary spending phase, and it will pick up again eventually. For now, companies are just sitting back to see what unfolds.

Yes. Appreciate that, Matt. And then we've often talked about M&A being a tailwind to your story. I think historically you're on the right side of M&A. With the recent developments that we saw in March and subsequent events, has that had any impact on the M&A approval pipeline? And how are you thinking about that generally throughout 2023?

Yes, it’s clear, especially after the TD and First Horizon deal, that regulators seem reluctant to approve new acquisitions. That being said, First Citizens is one of our customers and they acquired Silicon Valley Bank this quarter, which presents a great opportunity for us. I’m eager to collaborate with First Citizens and Silicon Valley Bank to ensure the integration and conversion process is as smooth as possible. While mergers and acquisitions have understandably slowed down, the reasons for our past success in M&A still stand. When activity picks up and consolidation occurs, I believe we will be well-positioned. It’s essentially a matter of weathering the current challenges. Additionally, I would argue that we have the most strategic customer base among vendors, and those customers will continue to seek out other financial institutions for growth and scaling in this economic environment.

Understood. Thanks again for taking the question.

Thanks, Parker.

Thanks, Parker.

We'll take our next question from Alex Markgraff with KeyBanc Capital Markets.

Hey all. Thanks for taking the questions. Maybe just to pile on to the demand topic more specifically within the emerging business segment, so for Jonathan. Just kind of curious. You provided some helpful anecdotes around the events in March. Just curious how your conversations more broadly have evolved with customers in the last couple of months and maybe how expectations for 2023 have changed, if at all, as the backdrop has evolved a bit? Thanks.

Yes. So, let's bifurcate between Innovation Studio and Helix. On the Innovation Studio side, we are seeing more demand for partners for access to the channel. So they want to integrate with banks and credit unions. As they faced headwinds in their business because of economic pressures and funding pressures, the demand for a single point of entry to many users, like we have over 21 million on the platform, is driving a lot of the success we're seeing on the Innovation Studio side. When you look at Helix side, I think you have seen some impact on the net new environment in terms of the lengthening of sales cycles because of scrutiny around banks, especially post March 9th, and all of our model includes our fintechs and brands partnering with sponsor banks. And so, there's definitely a different level of diligence that goes into that. But the pipeline is still strong. I think if anything, the demand for deposits is driving a renewed interest in what a lightweight core can do to help drive deposit gathering strategies. So, we feel really good about it. As we talked about on the call, our existing customers are renewing with us. We're being very strategic in helping them navigate their profitability profiles by managing things like fraud. We're navigating this environment and making sure we're there for our customers and in the right position to win new deals as they come up. The pipeline does remain strong for the rest of the year, so we're cautiously optimistic.

Great. Thank you.

Thank you.

Thanks Alex.

Thank you. And this does conclude the question-and-answer session. Thank you for participating in today's call, and you may now disconnect.