Q2 Holdings, Inc. (QTWO) Q1 2025 Earnings Call Transcript

Good afternoon. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings First Quarter 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We kindly ask that you limit your questions to one and one follow-up with additional questions being received if time permits. Thank you. I would now like to turn the call over to Josh Yankovich, Investor Relations. Sir, please begin.

Thank you, Operator. It contains forward-looking statements that are subject to significant risks. The important factor is a section of our website, including our quarterly report on Form 10Q for the first 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 day 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. Also, unless otherwise stated, all financial measures discussed on this call other than revenue 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 is available on the investor relations section of our website and in our Form 8K file. We have also published additional materials related to today's results. Let me now turn the call over to Matt.

Thanks, Josh. I'll start today's call by sharing our first quarter results and highlights from across our business. I'll then hand the call over to Jonathan to discuss our financial results in more detail and provide updated guidance. In the first quarter, we delivered results above the high end of our guidance, generating revenue of $189.7 million, up 15% year-over-year. We also generated adjusted EBITDA of $40.7 million, representing 21.5% of revenue, and we generated free cash flow of 37.8 million dollars. We started the year with solid sales performance highlighted tier one deals complemented by continued execution in tier two and three. In terms of net new highlights, we signed a tier one relationship pricing deal in the quarter with a bank that will use our solutions to give profitability across both lending and deposit at product lines. The enterprise and tier one success in the quarter was also driven by significant expansion activity within our existing customer base. For example, we had a top 50 U.S. bank sign an expansion deal for our risk and fraud solutions in the quarter. In our last call, we talked about the rising cost and complexity of fraud management, and this deal demonstrates the growing demand we're seeing for best-in-class fraud solutions. The bank signed a deal to expand their utilization of one of our fraud products adding roughly the equivalent of a tier one digital banking deal and bookings value to the partnership in the process fraud mitigation is a and one we believe will remain prioritized regardless of the macroeconomic factor so continue to see q2 innovation studio drive both net new momentum and stronger relationships with existing customers as an example united federal credit unions uses a variety of q2 solutions and innovation studio partners, including targeted features aimed at payment flexibility and member-driven interactions, to more than triple digital engagement with those features across its member base. While we continue to drive investment into R&D, the breadth of our partner ecosystem continues to separate us in the market because of our ability to deliver innovation quickly, and stories like United's provide a great example of the kinds of outcomes customers are able to drive with the combined power of our platform and innovation students. We also had another strong quarter of renewal activity, which is particularly exciting on the heels of the single largest renewal quarter in company history in fourth quarter of 2024. In the first quarter of 2025, we signed renewals with three of our top 10 largest customers across digital banking. These large renewals are a vote of confidence in the strength of our partnership and the criticality of our solutions and in times of economic uncertainty we have historically seen expansion and renewal activity we have had strong renewal bookings over the past several quarters and we believe we will see a similar renewal opportunity set in 2025 and 2026 compared to what we had available over the past i believe our business is durable due to the mission critical nature of our products our strong and diverse customer base and the fundamentals of our model of macro uncertainty. The pandemic, rising rates, and the events in the banking sector from March of 23 underscored the importance that our solutions are essential in helping customers over the last several strategic and diverse customer base across our solution areas. And we believe our regional and community financial institution customers play an essential role in supporting the economy, including in challenging times. In terms of what we see here in early May 2025, we continue to see a solid pipeline for the remainder of the year with a strong overall renewal and expansion opportunity ahead of us. With that, I'll hand the caller to Jonathan to discuss our financial performance from the first quarter in more detail and provide our updated guidance for 2025.

We started 2025 with a great first quarter, delivering strong results across several key metrics, both of which exceeded the high end of our previously issued guidance. These results underscore the continued execution of our profitable growth strategy, reinforced by another quarter of solid bookings execution and record free cashflow generation. I will now discuss our financial results in more detail and conclude with our updated guidance for the second quarter and full year 2025. Total revenue for the first quarter was $189.7 million, an increase of 15% year over year and up 4%. So revenue growth was primarily driven by subscription based revenues, which grew 18% year-over-year and 5% sequentially. Subscription revenue as a percentage of total revenue continued to grow, ending the quarter at 81%, highlighting the ongoing shift in our revenue mix. Year-over-year and sequential revenue growth was primarily driven by a combination of new customer go-lives. Our services and other revenues declined by 7% year-over-year, primarily driven by a reduction in our professional service revenues. While we continue to anticipate that ongoing pressure on discretionary services demand will drive further increases in subscription revenue as a percentage of total revenue, this shift also aligns with our strategic focus on higher margin. We believe this evolution in our revenue mix positions us well for sustainable, profitable growth. Total annualized recurring revenue, or total ARR, grew to $847 million, up 11% year-over-year from $761 million at the end of the first quarter of 2024, driven by strength, which grew to $702 million, up 14% year-over-year from $615 million in the prior year period. Our year-over-year total ARR growth saw continued strength in net new bookings, partially offset by the decline in professional services based our ending backlog of approximately 2.3 billion dollars increased by 74 million dollars sequential and 379 million dollars year over year representing 20 percent growth the year over year and sequential increases were primarily driven by expansion with existing customers as we renewed three of our largest customers as we have mentioned previously the sequential change in backlog may fluctuate quarter to quarter based on the number of renewal opportunities available within that quarter. But as Matt mentioned, we believe we will see a similar number of renewal opportunities available to us in 2025 and 2026 as we did in the prior two years. Gross margins were 57.9% for the first quarter, up from 54.9% in the prior year period and from 57.4% in the previous quarter. The sequential and year-over-year increases in gross margin were driven by an increasing mix of higher-margin subscription-based revenues. The growth in gross margin was partially offset by a seasonal increase in compensation costs. Total operating expenses for the first quarter were $77 million, or 40.7% of revenue, compared to $73 million, or 44% of revenue, in the prior year quarter, and $75 million, or 41.2% of revenue. The year-over-year and sequential improvement in operating expenses as a percent of revenue was derived from increased scaling across all operating expense categories, with GNA showing that as we continue to focus on operational efficiency and our ability to scale to meet our customers, adjusted EBITDA was a record 41% from $25.2 million in the prior year period and up 8%. We ended the first quarter with cash, cash equivalents, and investments of $486 million, up from $447 million at the end of the previous quarter. We generated cash flow from operations of $44 million, driven by improved profitability and continued effective working capital management, and generated free cash flow of $38 million. Although we typically experience weaker cash flow in our first quarter due to seasonally higher cash costs associated with our annual bonus and year-end commission payouts, Our cash flow performance this quarter exceeded typical seasonal patterns, benefiting in part from favorable timing with stronger than expected free cash flow conversion in the quarter. We expect second quarter free cash flow to be lower than the first quarter, but continue to expect second half free cash flow to exceed the first half of the year while remaining on track to achieve greater than 85% conversion. Let me wrap up by sharing our second quarter and updated full-year 2025 guidance. Second quarter revenue in the range of $191 to $195 million. And we are raising our full-year revenue, representing year-over-year growth of 11 to 12 percent. We forecast second quarter adjusted EBITDA of $41 to $44 million and are raising our full-year 2025 adjusted EBITDA guidance to 170 to 172 percent of revenue. We previously communicated the expectation for full year 2025 subscription revenue growth of at least 15 percent and we are now raising that outlook to at least 15 and a half in summary we started 2025 with strong delivering first quarter results that exceeded our previous expectations this performance coupled with our outlook for the remainder of the year has given us the confidence to raise our full year guidance despite ongoing macroeco balance sheet significant free cash flow generation and continued focus on operational efficiency positions us to navigate potential challenges while prioritizing our customers' long-term success. We remain confident in our ability to continue executing our profitable growth strategy and driving long-term value for our share.

Thanks, Jonathan. As we conclude the first quarter, I'll reiterate my confidence in the fundamentals of this business. First, we had a solid start to the year that underscored a few key themes. Expansion and renewal activity were both strong, and we see plenty of opportunity in these areas for the rest of the year. Fraud management, which is a growing priority for financial institutions, was a key driver of our bookings performance and something we expect to play an increasingly important role in our customer relationships. We have positive momentum and a solid pipeline for the remainder of the year. Looking at the big picture, we remain confident in our outlook, which we believe is predicated on a few key factors. First, our solutions are essential to our customers' success, particularly in attracting and retaining deposits, making more informed decisions with tools like Precision Lender and providing best-in-class risk and fraud solutions from both financial institutions who play a key role in supporting the economy. And third, the visibility of our model combined with our improving profitability profile give us confidence around the financial outlook for the business. Thank you. And with that, I'll hand it over to the operator for questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We kindly ask that you limit your questions to one and one follow-up, with additional questions being received if time permits. We will pause for just a moment to compile the Q&A roster. Your first question comes from Parker Lane with Stifle. Please go ahead.

Hey, guys. Thanks for taking the question and congrats on the quarter. Matt, clearly there at the end, you were talking about the traction you're seeing in fraud and how this is a big priority for your end market. I was just wondering if you'd give us a sense of the relative level of penetration you're seeing there and in some of the pipeline that you see, how often is fraud part of the evaluation?

Yeah, Parker, it's both part of a net new deal. It's a different share for us especially on the commercial opportunities um so you see it on the net new side and obviously we had some big expansion wins especially up market with it so i think it it's broad-based it's it's you know we have obviously we have a lot of customers that use the fraud products but we've added additional products to the to the offerings that we have so there's we have a lot of green space to go get after with the fraud products and we're going to continue to innovate in that area, both with the products we're building as well as partnering with some of our partners like Alloy and other ones in our innovation studios. So a lot of opportunity there. And unfortunately, fraud has really picked up with the continued utilization of digital products, whether it's attacking the end user, the commercial customer, or the bank.

Got it. And Matt, you also mentioned a lot of confidence in the renewal opportunity. Just wondering if you could talk about if that's the absolute number of customers you're expecting, or is that total contract value, any additional grant?

Mark or Jonathan, so the easy answer to that is it is the reference we saw get done in 2023.

Understood. Thanks again, guys.

Your next question comes from Alex Schuyler with Raymond James. Please go ahead.

Thank you. Matt or Jonathan, just in terms of the macro comments you made at the outset, I know you've got a high degree of visibility in the model for 2025, but did you incorporate any different potential macro assumptions into the raised outlook relative to the last quarter?

No, not from a macro perspective. Obviously, we have a lot of visibility into the 25 numbers, and with the benefit of Q1 behind us and the Q2 guide out there, there are some things that can happen throughout the year when it comes to cross-sale and renewal activity that can have an impact but from a p l perspective uh we have a lot of confidence in the 2025 outlook and uh you know we'll look towards 2026 based on the execution that we ultimately deliver here in 25 and then when it comes to bookings that that will we'll see as the year uh goes on and and obviously that will have the biggest impact on any changes relative to what we've already already shared on okay great um and matt maybe one follow for you um you talked about strength beyond the tier ones

in the presentation. It looks like the credit union mix of error stepped up. It's something that we've talked about a ton recently. What are you seeing from that section of your market in terms of priorities there? Is there any increasing focus on the commercial side of the house or with fraud that's seen you put focus more there on that section of the market?

Yeah, on the credit union side, we're performing well there. We really are up market in the credit unions. 40% of the top 100 credit unions are customers of ours. And a lot of those credit unions are looking to diversify their book and to get more commercial customers. And so when they have the retail platform in, it's a single platform they can add on demand the commercial functionality they want. And they usually go micro and small business first and then grow into larger commercial, at least that's their hope. And so we're just a great fit for them. And then you couple it with the fraud solutions we have, the operating discipline that we have around running a commercial bank. We have consultants that can help them build their practice. It's a really nice fit for us. I think it's a big opportunity for us, as it has been in the past, and it will be moving forward.

All right. Great. Thank you both.

Thanks, Alex.

Your next question comes from Terry Tillman with Truist Securities. Please go ahead.

Yeah. Hey, Matt, Jonathan, and Josh. Thanks for taking my questions, and congrats on the quarter. And sorry in advance here if there's any background noise, but my first question is, I appreciate the idea of the number of opportunities is pretty similar in 25 and 26 versus 23 and 24. I'm curious, though, in 25, Jonathan, because people do look at, you know, kind of backlog and certain KPIs each quarter. Is it pretty linear across the quarters in terms of the renewals base that you're looking at? And what kind of uplift are you seeing in these bigger renewals and then add a follow up?

Yeah, so it is definitely not linear. So, you know, we don't guide, obviously, the number of opportunities by quarter. But over the course of the two, what we're trying to make sure that the investor base understands is that over the next two years that we have a similar size of opportunity set in terms of the number of logos. I think there was a narrative on the back of Q4, which was our largest renewal quarter in the history of the company, that that would act as a headwind or that we pulled forward because of the commentary about out-of-scope renewals last quarter. And I think we just wanted to make clear that as strong a year as 2024 was, in particular from renewals, we have an equally strong opportunity ahead of us over the next two years. So I wouldn't interpret it any more into that than that. And then as far as quarters, because the timing of these things are like a deal with much shorter sales cycles potentially, but you never know when the act of the contract. So there's just a lot of volatility in the specific timing of which quarter it will fall in.

Understood. And maybe just my follow-up question is Innovation Studio. I think a couple of quarters ago, you know, the business plan for what Innovation Studio could do for one of the customers that was going to help fund the deal, whether it's those kind of aha moments or just, you know, potentially when RevShare or some of the partner fees could start to, you know, kind of add up to something meaningful on the income statement. Just anything more you can share on Innovation Studio strategically?

Yeah, I can share some thoughts on Kirk. But the metrics always be strong. We have our client conference coming up here in a couple of weeks where we're going to have our customers on stage sharing new stories and new anecdotes of the impact it's having. So I guess what I can say, Terry, is that the flywheel is continuing to turn and we're seeing more and more traction and progress against all of those KPIs. And, you know, we're just really pleased with the adoption. We're at a record high number of FIs that are using this now. and as we've talked about several quarters in a row now virtually every deal on the net news side is citing it as a key reason for choosing us so we're our motion around helping the fis is better and we're seeing the results yeah i think all right thank you all thanks your next question comes from adam hotchkiss with golden effects please go ahead great thanks so much for taking

the question matt you mentioned three renewals with your top customers any commonalities in your conversations with those customers and what they're focused on? I think you've mentioned fraud. We've heard in the market a lot of excitement around things like account opening. I'm just curious if anything has changed maybe over the last three to four months, given everything that's going on in terms of FI priorities. Thank you.

Yeah, well, these were all, you know, what we said in the script was it was one of the largest digital banking customers, one of the largest helix customers and one of the largest precision lender customers so you've got a broad swath of type of companies of businesses there but you know first of all I think that the renewal is a statement that we're doing a great job for them and they want to continue to work with us but largely it's what am I going to switch to you know these are the best products in their categories and they're going to stay on them and they want to stay on them so it's really a validation of how we're doing in the marketplace they get to see whether we're winning and losing They go look at everybody else's solution. Everybody gets to do their dog and pony, and they stick with us. So that's really what I take from it. There was not any commentary around the economy or anything like that.

Okay. Yeah, that's helpful. And then, Jonathan, I wanted to ask around gross margin improvement. I think you've had a number of quarters now of sequential gross margin improvement as we sort of work towards the 60% range. How should we think about gross margin progression over the next one to two years, and what are the drivers there?

Yeah, thanks, Adam. Yeah, we're going to continue to see progression, I think, between continued progress when it comes to pricing and packaging and value capture overall, both on the net news side and at renewal and cross sale, as well as some of the cost efficiency measures we've taken, they continue to yield benefit for us. And then as we get into 2026, as we've talked about before, that's when we see the more significant step up as we migrate out of the data center into the public cloud fully on the digital banking product, and that has, you know, the biggest impact in calendar 26. So, you know, it's a whole set of initiatives that take time that we've talked about over the last couple of years and will continue for the next couple, as well as, you know, pricing initiatives on the top line and then the cloud migration that, you know, we think will get us to 60% and beyond.

Great. Thank you both very much. Thanks, Adam. Thank you.

Your next question comes from Dan Perling with RBC. Please go ahead.

Thanks. Good evening, guys. i just um matt i wanted to cycle back a little bit on um just kind of the near-term macro conversations that you've had with clients lately uh are you seeing any you know indications of client behavior changes you know one of your competitors just more invention kind of nervousness around discretionary spending which i know is a little bit different for you guys in terms of what you define as discretionary and they do but like it did sound like things were getting a little more cautious not on the sales motion necessarily but like on things that could get paused we're putting on pause. And I'm just wondering if you're having any of those similar conversations today.

Yeah, we're having a lot of conversations with customers and prospects. And I know nervousness is probably the right word to use, but they're not seeing it show up in their credit books or on the deposit side. But if you look at the top of the funnel, the pipeline we have, the deals we're working, there's been no slowdown in those. And our top of the funnel, we had strong growth from the first quarter and that kind of feeds the rest of the year. So other than the conversations we all have around what's going to happen, they're going to get deals done, is there a recession, whatever all the topics are, they feel good about their business. They're in a good spot. So there's nothing out there. Kirk, do you want to add anything? I know you talk to a lot of banks as well.

Yeah, I'd just add that we marked them again. So yeah, there's some uncertainty out there for sure, but they had very, so everyone's kind of trying to look around the corner.

At the moment they're not changing yep nope that's that's great color um and then just quickly on the cash flow again like really strong uh free cash flow this core and as you pointed out you're kind of exceeding the seasonal patterns i just want to make sure i understand what what that means i mean you kind of give the cadence for the year but you called out larger client invoicing and it would seem as though you kind of continue to kind of uh punch you know above your weight going up and up in terms of client sizings winnings renewals so i'm just wondering is there going to be a point which it's going to just change naturally we need need to be mindful of that understanding like the

conversion can still be in the kind of mid 80s but the cadence seems like it's changed a bit and i'm just wondering if that's a one-off or if that's something we need to be prepared for thank you yeah i mean it's a good question at the end of the day i think we're we're continuing to execute really well obviously on the profitability side but then there was annual payments and we collected that at the end of the first quarter of a pull forward from work into the first quarter so that That certainly inflated the first quarter outcome, and that's where on the call I mentioned that the second quarter you might see a dip, but the full year prognostication remains. And to your point, I think we feel really strongly about our ability to convert EBITDA free cash flow at a very high rate, and we're just getting better and better at it. So there is one dynamic, though, in the perspective.

That's great. Thank you so much.

Your next question comes from Joe Brewink with Bayard. Please go ahead.

Great, thanks. I want to ask about the commercial suite, Matt. I think you brought it up as strong in the credit union space. Some of your peers have been mentioning higher attach and their activity certainly seem to be a focus of banks year to date. I guess my question is, does that sentiment change at all in response to tariffs? You know, I'd imagine business accounts are the ones that are really going to have to contemplate additional pressures. Does that cause your bank customers to refocus on the consumer side at all? Does it change the overarching directives?

I haven't heard that from any bank. What they want to do is they want to have more engagement with those commercial customers. After March of 23, whatever that was with the crisis with Signature and Silicon Valley, in particular, you saw a big lift in our pipeline because they realized they were just using it for balance and transfer capability, and they wanted to begin to have them operate their business with it, whether it's ACH wires, entitlements, reporting, and fraud products. And so I think what happens is they really lock in on these customers and try to drive more products in there so they can make them sticky. And keep in mind, they generate revenue off of these customers more than they do retail. It doesn't mean they're not paying attention to the deposit side with the retail customers. But if anything, you want to lock in more with your customers because they're harder to get new ones. So it should drive more utilization of the product, more products. and I think you're seeing some of that with the expansion results that we had in the quarter.

Yeah, okay, great. And then just on the subscription ARR, I think it grew maybe a point faster than the registered user growth in the quarter. Just given all the attention, you know, on commercial and the fraud products, the expansion activity, do you think the ARPU growth might actually start picking back up through the remainder of the year?

Yeah, I mean, there's a lot there because we did see in the first quarter a significant jump in the number of registered users on the retail accounts, the metric we disposed publicly, and that was a lot of drivers, but one of the big ones was one of the large go-lives we had. The reality is as the mix of commercial continues to grow, that will typically come at higher ARPU, but with less user ads. bank. So we're watching both numbers. I don't think that the retail metric, the 26-plus million users, is a great barometer for thinking about long-term, especially if you think…

Great. Thank you very much.

Your next question comes from Michael Infante with Morgan Stanley. Please go ahead.

Hey, guys. Thanks for taking our question. One of your competitors earlier today had discussed the fact that they're starting to see higher levels of bank M&A broadly amongst their base. Anything you would share just in terms of what you're seeing amongst your customers and whether or not your typical win rate in those situations is in line with historical trends?

Yeah, Michael. Well, Q1 was the lowest number of transactions in the last three years that I can I think there's 46 of them. The good news for us is we had 21 acquisitions or MOEs in our customer base, and we were the surviving entity in 20 of them. So that data, it holds true. It's been 90% plus over the last three years, and I guess that's 95% doing quick math. But I think in this uncertain environment, it's slowed down a little bit. I would think there's going to be some pent-up demand whenever we get through this, assuming we get through it in the next couple quarters, and you'll see it pick back up. But like I said, it was the lowest quarter we've seen in the last three years in Q1. But they are talking about it. You've got to have a buyer and a seller in this situation, and I think it's probably going to take a couple quarters before it comes out.

Very helpful. And then, Jonathan, just on the three large renewals that you cited, is there anything you would call out in terms of pricing or duration evolution in those renewals specifically? I take your commentary on having to execute over the next few quarters from a bookings perspective. But if I just think through some of the drivers of the subs revenue growth decal that you expect in 26, aside from the comp getting tougher, you're still not really seeing that normalization in the renewal opportunity. You still have a similar number of logos over the last couple of years. The tier two and tier three cohort is still really strong. And now you're taking up your 25 subs growth expectations. So just wanted to make sure we're sort of thinking about some of the pricing and duration dynamics.

Yeah, they were actually pretty typical. Again, Matt mentioned the three that we called out on the call, large customers in each of digital banking, Helix, and Precision Lender. and the duration, and candidly, the terms were very typical. So on the digital banking side, those tend to be a little longer in duration, where the Helix side are three-year deals. So those were standard. All three were very happy with the terms we got, so nothing there, excess terms. But like a lot of the renewal performance we saw in 2024, Q1 was marked by strong renewal economics across the portfolio of deals that we did. So obviously, if that continues, we feel that impact in 2025, given we're just done Q1, but that also rolls, you know, we just got to keep executing like that as the year rolls on, and that'll benefit us.

Thanks, guys.

Your next question comes from Chris Kennedy with William Blair. Please go ahead.

Good afternoon. Thanks for taking the question. Just wanted to follow up on the last question. As we think about 2026, subscription revenue growth, you put the floor of 13% out there. Any more color on that?

Not sitting here today yet, Chris. Obviously, we talked about when we put that out, that's based on our plan at the beginning of the year. And we have a lot of time left in 2025 to go and execute. We talked about feel really good about the P&L in 25, but there's plenty of variability in terms of the 26 P&L when you think about bookings attainment the rest of this year. And so we're not going to be commenting on 26 further until we have the visibility to give more on it. But still feel really good about what we have out there, both in the three-year framework as well as don't have any more to add to that.

Understood. Thanks for that. And then just real quickly, capital allocation, there's been a lot of M&A activity out there in the market. Any observations on valuations of private companies or anything you want to talk about?

I mean, there have obviously been, especially in Q1, we saw a few deals in our space, including one on the account opening side, some of our larger peers doing some large deals. But yeah, I mean, the ones we looked at, you know, we're watching the corp demo. We think we're in a strong position, both with the balance sheet strength and the free cash flow generation, to be a strategic partner in the long term. But finding the right assets, finding them at the right valuation and with the right profile that matches our new profile that we've developed over the last couple of years is, you know, just a lot of things have to line up. And so we have not seen that happen.

Thanks for taking the questions.

Your next question comes from Dominic Gabriel with Compass Point. Please go ahead.

Good evening, everybody. Thanks for taking the question. I was just curious if you could discuss the subscription growth that you're seeing in the quarter, which was better than expected, versus the slight deceleration you're seeing in the ARR growth year-over-year. What could cause the differential there? And which one of those do you think is going to follow the other, I guess, as you look Thanks so much.

Yeah, so firstly, the subs ARR metric will be the leading indicator to subs revenue. So if you look at last year's subs ARR metrics, I think what we're seeing in 2025 is really a reflection of the pattern we saw in subs ARR last year, meaning last year, first half we saw subs ARR reach higher levels in the 18-19% range, then decelerating down to sort of 17 down to 14 15 exiting 2024 and that's what you're sort of seeing in our subs red starting the year with an 18 year-over-year growth so the way you should think of it is the arr metric is more of the leading indicator these things don't time perfectly at all it's not like you should look at the q1 subs error and it's going to be a perfect match to the following year's q1 subs revenue growth but directionally it gives you the the pattern and that's sort of the dynamic think of the subs ARR number as really what we're booking and ultimately have to deliver to get to revenue. And then the subs revenue growth is the actualization of that revenue on the P&L.

Thanks so much.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.