Q2 Holdings, Inc. (QTWO) Earnings Call Transcript & Summary

Thanks, everyone, for joining us. My name is Sterling Auty. I'm a software analyst here at JPMorgan. I'm happy to have with us Matt Flake and his entire entourage at Q2. Gentlemen, thanks for joining us.

Thanks for having us. And I'm sure they're offended by them being my entourage, but I appreciate you give me high status.

Listen, let me also introduce David Mehok, who's Chief Financial Officer; Jonathan Price, who's EVP; Josh, where's Josh, hiding in the background, buried in the screen, Head of Investor Relations, Josh Yankovich.

So Matt, just to start things off, can you give us just a quick overview of the business and what really differentiates Q2 from some of the other solutions that are in the marketplace?

Yes. Thanks, Sterling. So 17 years into this, we provide digital banking, which is what traditionally is known as online banking, where you log in your desktop, tablet or mobile phone, you view your balance transfer funds. We have a single platform in that space that allows us to provide retail, small business, corporate banking functionality. We also have an account acquisition tool to onboard customers to make it easier for them to become account holders at the bank. We also have a digital lending side of the business, which allows -- makes it easier for borrowers to become borrowers remotely for their mobile phone tablet or desktop. There's an onboarding and then a servicing tool to that, that works in certain asset classes. And then we also have a banking as a service business, which powers many of the large fintechs in the country, Credit Karma is one we announced last quarter. That's for a debit card program that they use. It's a cloud-based deposit processing tool. For us, I think the differentiator for us is the breadth of our feature functionality, the depth of our feature functionality. We still win on point solution -- against some of the point solution guys regularly, and we also have a tremendous amount of data. We had more than 3 billion log-ins on our application, on the digital banking application last year. We priced more than $4 trillion worth of loans on our pricing -- on our lending and our pricing and coaching tool. And then you take all of that data, and that data is ultimately going to turn into experiences that our customers' customers will have. So whether it's a bank, credit union or fintech, the way you're going to get to know people, we believe in the future is digitally. And the data that is on these systems allows us to not only provide marketing tools for our customers to cross-sell products. It provides security and regulatory information for our customers. And it also allows them to be more informed about solutions to offer their customers so that they can build their business organically by cross-selling products digitally.

Awesome. So how has the pandemic really changed your business?

Well, to some extent, Sterling, it forced all of our customers to realize what type of technology they had and didn't have. And it separated the wheat from the chaff to some extent, because many people began to realize that their applications weren't designed to work consistently on a mobile phone, a tablet and a desktop. It didn't have the feature functionality to make a deposit, to deposit a check via a mobile phone. And so it really had everybody take inventory in the middle of a pandemic of what they really can do digitally versus what they thought they could do. And so the next piece is that it had an impact that allowed people to realize that they can do a lot more, customers are willing to do stuff digitally as opposed to there's a perception that by some of these bankers and credit union folks that people want to do things in person. I believe the reality is the majority of us would rather get our banking done and go on and move on with our life. That doesn't mean that you don't need bankers. They're extremely important to understand circumstances and offer products that solve -- that can solve some of your business or personal challenges. But the majority of us, check your balance, deposit a check, do a wire and ACH, run your business every day. And that's really what the digital banking and what the pandemic did for us was it allowed us to our customers to see that let's do more digitally and less in person. It's more efficient, solve our customers' problems faster, provide a better experience and then they get the credit because they're associated with it. It's their brand. So it really has opened it up. I tell a lot of people, if this would have happened in 2003 or '04, I don't know the blockbuster wouldn't still be in business because they would have been forced to figure out how to put those movies on server, so people could call them up as opposed to thinking people are going to continue to go and rent movies from their stores.

Exactly. So it's a good segue in terms of, all right, vaccinations are kicking in, economy starting to open back up. Does that have any type of flashback impact on the business?

Well, I think to some extent, for our customers, they're going to be out of the government lending programs, and they're going to begin to provide loans to these small businesses that are firing back up. So I think there's going to be a huge tailwind to their business. As far as more business coming to them, there's obviously a ton of money, savings accounts are high -- savings on a per person basis as high as I think they've ever been. So all this is going to lead to what I think is going to be a pretty strong run here for the banks. And I think there's a technology refresh that's going to be occurring for them over the next 3 to 5 years to build this digital transformation program where they can do things -- more things digitally than in person.

So you kind of divvied up the business into digital banking, digital lending, banking as a service. How does the revenue breakdown along those segments?

Yes. I'll give you sort of the revenue breakdown by each 1 of those segments, Sterling, and talk very broadly about the market, if that helps as well. We sized the market for digital banking at about $5 billion. And this year, that digital banking business will be roughly around $400 million. So obviously, big TAM and big white space for us to continue to go after. The mix is more heavily weighted for us in the banking side versus the credit union side. On the digital lending space, we've got about a $4 billion market there. And roughly speaking, when you take that digital banking business, it's sort of a 15% to 17% of our overall mix. And then the remaining mix of our business is the BaaS business. And we did a sizing of that. I think it was about 6 to 9 months ago of $1 billion plus. We think that's a conservative estimate right now. As you know, that's a rapidly growing market. And that's one where we see a lot of upside, a lot more runway as we look out 2, 3, 5 years. And then when you look within the customer set that we have, we sell about 30 products right now. So if you look at our K, that's how many products we currently have on there. And we have about an average penetration rate of 7 to 8 with as much as 15 products sold to a given customer. So still a lot of white space, if you look at it from that perspective as well.

Excellent. Matt, with all that you said about digital adoption, does that actually put some of your core customers at risk of being disintermediated?

Well, it depends on how they decide to approach it. To my point on Blockbuster, are they going to go and use technology as a weapon, are they going to use it as a shield? And I think we tend to attract the ones that want to use it as a weapon. But we get to see the whole thing play out, whether it's banks, big banks, credit unions, big credit unions, small credit unions and then the fintechs and to see what they're doing. And I think we have a lot of banks who are doing some very interesting things with technology and capitalizing on their low cost of capital, the relationships they have, their experience. And so I think -- but some are going to be at risk if they don't begin to change the way they've been doing business.

So some investors ask me the question this way. Hey, let's use a round number. There's 10,000 banks and credit unions out there. You're in less than 10% of them. Yet, you've been doing this for 17 years. Why not more?

Well, I think, to some extent, you got to realize that -- I mean I don't want to be the digital banking provider for every single bank because they have very different views on what they want to do and how they want to do it. And some of them are honestly, not really progressive in thinking about how they want to move -- use technology as a way to differentiate. And so for me, we try to find the right bank, the right credit union or the right fintech that wants to use technology as a way to differentiate. And they're just not all the same. I mean, I think, to some extent, people think that they're all -- it's just a bank as a bank. But they're very different in how they want to use things. Some people just want it cheap and don't care about how it looks or feels, and then some people want to -- don't care about how much it costs, but they all care about how much it costs but aren't as sensitive to how much it cost. And then they want to use it as a way to grow and differentiate. We want to find that group of people. And the other thing is, is that there's actually people that are out there building products that are competitive and they want to do it better than us, and they do things different. They have a different store rate. And maybe we're more cost effective. It might be that we have a different look, whatever it is. And so if I could roll them all over and make them buy it the way that they want to, I probably would, but that's just not the way it works. And so you have a bunch of different people. We have found, if you think about it, Sterling, in our business, we have more than 85 customers that are greater than $10 billion in assets. We have more than 140 or 150 that are greater than $5 billion in assets. And we went public, we had 1 bank greater than $10 billion in assets that was using our technology. So we've done an amazing job of penetrating upmarket. We continue to have success in Tier 2 and Tier 3. Our product sets as broad as it's ever been. We still win on -- against the point solution guys on certain features and functions for the guys that just do certain elements of our business. So we're in a really good spot, and we're continuing to win deals, and it continues to be more competitive. We're very proud of the fact that we've helped a lot of companies raise money, go public. And it's a big space, and there's room for plenty because I can't tell everybody it's a zero-sum game when I'm going public and then it becomes a zero-sum game, whenever I'm the bigger one in the group. So there is going to be a lot of names to change hands, and we feel like we're really well positioned to capitalize on the technology refresh and the digital transformation that's occurring.

Within that digital banking space, do you feel like it's more competitive, less competitive or the same as when you went public?

It's different in that, like in digital banking, when you're talking about just digital banking, if there's a bank or a credit union that wants a single platform for retail, small business and corporate banking with data and fraud analytics around it, it's very difficult for anybody to compete with us. If it's a bank that wants just consumer, it's crowded. If you just want retail Internet banking, it's a crowded space. There's a lot of people that are offering a lot of different things. They have a lot of different angles. And so that's why, as I've said before, we're making sure that the bank or the credit union is looking at digital transformation and what they're going to do and what's their long-term plans. And if we can get in front of the prospect and talk to them about this is not just about retail Internet banking, it's about you have small business customers on there. You're probably going to move your business to corporate, you want data. Or about lending, you can begin to originate a loan and cross-sell loans to customers in the retail experience. Then it's a much different environment. But yes, there's clearly -- there's a lot more names in the space now. There's a lot more private equity that's -- and venture money that's come into this space. And so it's -- in some ways, it's more crowded than others. We have differentiated ourselves against everybody on our products and services, whether it's lending, deposits, retail, small business, commercial or data.

Let's talk about digital lending. You've put together a couple of assets and developed on top of it. Where do you feel you are in the evolution of that business? In other words, have you gone from a toehold to a foothold? Or where are you?

Well, I mean it's very early for us, right? So what you have now is you have as far as in next-generation digital lending, you have nCino, which has done a great job of really capturing the top 100 commercial class, top 100 banks and their commercial classes of lending. So commercial lending, they go in and they sell their force.com platform and do very well there. Those are the asset classes they've done very well. We have been more small business leasing consumer. We've done very well there internationally, and we're beginning to do even better here in North America. And we're doing things with it that are very interesting and the way we're tying it back to digital banking, whether it's treasury onboarding or in-app opportunities for people to become a credit card borrower or an unsecured consumer, whatever it might be that we want to put in the application, to convert the retail depositor to a borrower. So it's very early. I don't know about the toehold, foothold. I would say that we feel very good about the breadth of our offerings and the ability to go cross-sell these products to our customers by using the data. We're the same company. We have integration points that are very unique to us that nCino and the other ones can't. So the lending space is very -- the digitizing of the lending space is very early. We're going to continue to expand our asset classes. I'm sure nCino is going to do that as well. They're a great company, and I'm sure it'll be around for a long time, but there's a lot of space for us to play in. And like PrecisionLender, there's nothing like it in the market that does this type of pricing and coaching tool and the data that we're able to use. And it integrates with Salesforce, which was what nCino runs on. So we work with nCino in some cases, we work with spreadsheets in some cases. But really, we have a lot of unique assets in that area that are beginning to really shine. If you look at last quarter, PrecisionLender signed top 50 and top 25 bank, and we continue to see good activity coming out of them.

So besides yourselves and nCino, who else really is the -- rounds out that competitive landscape?

There's some homegrown stuff. There's no real big names. And I'm just talking about on the new like force.com platforms. There's not a lot of players out there. I'm not trying to be insulting any, but there's some homegrown things that are happening, but nothing really that I see that we run into a lot.

Do banks and credit unions want a single vendor lending platform for everything from auto to mortgage to business? Or is it going to be silo?

So you got stereotyping again. There's 10,000 of them. So they all kind of want different things, and that's one of the challenges that we have in the business, which is some of them have an auto tool for lending, and some of them have a mortgage tool for lending. Very -- there's very few people that provide all the asset classes. So on the lending side of things, Sterling, I think you're going to continue to see providers like Blend and those guys Roostify, those guys continue to do the mortgage side of the business. There's really interesting things happening on the auto side of the business. And then small business and credit cards, and there's a lot of different ways to originate loans for these separate asset classes. So I wouldn't say there's 1 that does it. I think that the easiest path is what they want, but provides the most compelling user experience. And the more data you have in that transaction, the more informed you have, the less work that the borrower has to do. So I can take -- if I have a depositor, I can take their name, their address, all the account information, and they don't have to enter that in. And then all you have to do is enter in whatever information is required from outside of that financial institution to provide for the loan. And so these are the things that make it easier because if you think about it, convenience is the new loyalty. You don't see advertisements about the rate or how much money you save as much as you see. You can get a credit card in 3 minutes, you can get a small business loan in 7 minutes, get this thing, because people are trying to get their business going and want to get the money as quickly as possible. So convenience is one of the things that we really try to drive with our experience -- with our user experience, and that's one of the things that data helps us with and why we're highly differentiated.

So in the digital banking side, we tend to think about per active user per month type of pricing and revenue models. What's it like in digital lending?

Yes. So the pricing for digital lending on -- now on the PrecisionLender side, it's very different. It's a subscription model. But on the digital lending piece, we can go through a per application base with subscription tied to the service every month, it grows as more users sign up for it. So you obviously, you don't have the same volume that goes through the system that you do on digital banking, meaning the number of people, whatever, 18 million individual account holders on the system. So it's still the SaaS subscription model. It's just priced differently based on the value of a loan versus 1 checking account.

Yes. That makes sense. And then let's switch over for a bit and talk about banking as a service. Help those that are new to the story, what does that encapsulate?

Yes, Sterling, Jonathan. So our banking as a service business really stemmed from an acquisition back in 2015 that was done of a company called Social Money. And went through some iterations between 2015 and 2018 really. But over the last couple of years, what we've really been focused on is powering fintechs to be able to launch banking services within their applications. At the highest level, BaaS is all about removing the friction about embedding banking into these apps. And so what we are really bringing these apps in the case of Credit Karma that Matt talked about is the technology infrastructure to stand up these accounts. When we talk about Credit Karma launching a checking account with an associated debit card, Credit Karma does what they do very well, including Intuit on the TurboTax side, Credit Karma on the credit score and monitoring side, but they're not a bank, and they don't have the technology or the core to stand up accounts and process transactions. And that's what we come to the equation with. We bring them the technology stack. We bring them a white label bank of record that obviously has the charter and can act as a regulatory framework behind these accounts or these programs that's required. And then we also bring them the third-party ecosystem that makes any of this work in a mobile environment, for example. You think about a debit card or a virtual issuance card, they're going to want to do that on their mobile device, so they need mRDC technology. We don't build that, but we have partners that we bring to that. You're going to need KYC, KYB, ID verification. So we bring that universe of vendors that make for that holistic solution to make fintechs like a Credit Karma be able to stand this up quickly and cost effectively.

And how do the economics work there? So how do you actually make money?

So there's 4 primary revenue streams in the BaaS business. Historically, the biggest one was always going to be we charge a subscription fee just like on any of our other businesses for access to the CorePro platform. CorePro is the product in BaaS today. The market in this space has quickly shifted more to a transactional model. And so you're seeing people because they're standing up these new programs with the first user or the first card, not want to pay big minimums upfront. So that's the first revenue line of subscription minimums. But then as those are getting squeezed down in the market, we're also charging excess user fees. And so as the minimums are getting squeezed, we're getting more and more excess user fees because we're charging for those given the lower upfront cost. So those are the 2, I guess, revenue drivers that I would call non-transactional. And then on the transactional side, you're going to have things like on a debit program -- debit processing fees. So depending on the processor, that can be pretty meaningful economics from a couple of pennies to several pennies per transaction. And then the other big one is probably the most accretive to gross margins is the interchange revenue share. So for every $100, the interchange pool in the market today is roughly $1.35. And we get a component of that, that we're sharing with all the other stakeholders in the business. So that's sort of a high-level view of the 4 key revenue drivers.

So Matt, as you look forward and you look at these 3 businesses, what would you expect to grow the fastest? And what would you expect 5 years from now to be the biggest contributor to the overall revenue?

Well, I think it's -- on growing the fastest, it's a race between lending and the BaaS side of the business, but we're still showing strong numbers on a big number with digital banking. I think it's going to be hard for those businesses. I certainly hope they're all competing to be the biggest one in 5 years, but I would think digital banking is still growing meaningfully at the size of company we are. I mean we did $407 million in revenue last year, 4 to 6. And we're at 20-plus percent this year on the top line. So that's a big number to be growing incrementally. That's as big as a lot of our competitors for the most part. So the incremental growth. So I couldn't answer that one, Sterling. Like I said, I hope all 3 of them are competing to be as the biggest piece of it because I mean we're at $2 billion or somewhere in that neighborhood if it works out.

That would certainly be good.

I love all my children. I want them all to do well.

I say that often to my kids as well. So how do you start to drive this in a more profitable fashion as we move forward? So in other words, where is the leverage in the gross margins and the operating margins?

I think there's a few things, Sterling. One is just the natural mix. So Matt talked about the fact that the 2 businesses that are going to be competing for the fastest growth are the digital lending business and the BaaS business for those 2 businesses have higher margins. So as we mix up those businesses over time, the gross margin profile of the overall business is going to lift. Then we have some very specific operating initiatives that are just going to come with scale and size, utilizing our scale more effectively to lower our cost structure overall, finding efficiencies across the organization. We're standing up a much more robust procurement organization. We're looking at utilizing the channel for the digital lending delivery model much more -- in a much more pronounced fashion. All of these things are more operating in nature. But when you balance those with the mix up in the business towards these higher profit businesses, it gets you to those long-term margin and EBITDA profitability targets that we've set out over the course of the last 12 months to achieve.

All right. Great. I want -- I wanted to hit -- some of the questions I asked were from investors, but I want to pull in a couple more here. This one, any perspectives that you could share on -- listen, the stock's pulled back since February. You know software went into a bear market. But do you think that the market is looking for a change in kind of either market share or where your focus is, meaning the share of the business between those three?

I mean I don't know why the stock pulled back. We had record bookings coming out of the pandemic, the biggest quarter we had since '19 and our biggest net new bookings we had in the history of Q1, biggest bookings we had since that period since '19 in the Q1 -- in the first quarter '21, we signed 2 enterprise deals. I don't know why the stock pulled back to some extent. We had the biggest beat dollar-wise. We've had, I think, in the history of -- in the first quarter -- I don't know why the stock pulled back, Sterling. I think it was more of a reopening story than it was anything to do with our performance. And so I just -- and we're just trying to execute the business. We're heads down on taking care of our customers and innovating down the path and making sure our employees are engaged.

Another one that came in is, you mentioned your data advantage. Is all that data first-party data that you're aggregating? And is there anything unique about the data that you collect or the way that you're allowed to use it?

Well, first off, it's our customers' data, and we collect it from the devices of their customers from the lending piece, like on the lending side of the business, we run all of the pricing we run through the system. And we use that generous size as a way to help our customers, which can buy those tools to see what's happening in their markets, which we have. The customers are aware of we're using the tool that way. So we have some of the most highly coveted, highly regulated data in the industry, debit card transactions, bill pay transactions, behaviors that occur on devices. That's on the digital banking side. We have information that we collect on the onboarding of a customer for lending. And all of this data, our intent to use this data is for our customers to help them cross-sell more products, expand their business, build better relationships or use it from a security perspective. So there's no nefarious use of our customers' data, and we're very protective of that for our customers. We ultimately believe if we can use the data to help our customers generate revenue, then it changes the talk track for how much money I try to extract from them for software. I mean driving revenue to our customers will benefit both of us. It helps them, and it will help us because we'll get a piece of the revenue. And it gets out of this model of trying to increase the price on them every single quarter as opposed to sharing revenue that we help them opening an account, generating revenue through loans or selling different products. And so that's really what the objective of the business is, to have an ecosystem where we actually contribute revenue and products that help them compete. So it's highly differentiated in that way. So all the data there is extremely valuable to us, and we protect it with all that we can to make sure that our customers respect us and that they know that we're going to do the right thing with it, which we've done to this point.

When you look at the consolidating industry, in other words, if we went back to 2015, 2016, there was 15,000 banks and credit unions. Now that's just under 10,000. How has that consolidation played out in terms of impacting your business? And do you think it would be different as we move forward?

Yes. I think one of the things you got to look at is that the number of banks and credit unions is going to continue to shrink, but they are -- the amount of assets and members of credit unions, for example, but the amount of assets that those 15,000 represents is with the 10,000 is still greater than what it was with 15,000. So they're buying themselves is the point. The Bank of America, Wells, Chase and Citi aren't buying community banks anymore. They're buying themselves. And so the assets are staying in the community bank and credit union market. And that is where the selectivity, as I said earlier, is critical. We have been the net recipient of more end users through acquisitions than we've lost through acquisitions. That means that our customers have been the buyers, and that aligns with who we go and target. And so for me, you're going to continue to see the number of banks and credit unions consolidate. That's just going to -- it's going to happen over time, it's been going on for 30 years. But the assets under management are continuing to be the same number and it grows like 3% a year or something with the credit unions and banks. And so as long as we're in the right spot, we generate revenue from the number of users on the system, the number of accounts that we have, the number of the accounts that we originate, the loans that we originate, banking as a service, the debit card transactions. So we're tied to the growth of the financial profile of our account holders. And so that's really what drives our business. It's the same story that we said 7 years ago when we went public, Sterling. There's going to be fewer banks and credit unions, but the assets and the end users are going to continue to grow.

Another question came in is about Temenos, Swiss listed, bought Avoka and Kony in the U.S., looks like they're trying to make a bigger push in the U.S., although I think we've heard that before, particularly in front office banking solutions, a lot of areas where you're playing. What are you seeing out of them competitively? And is it any different than what you saw in the past?

No, nothing different than I've seen in the past. I don't -- I know they do -- I mean I'm obviously involved in the international side of the business in Europe and Asia. And they do very well in those areas. But in North America, I just haven't -- other than the things that they bought that are there, that they're trying to manage, I don't see much new stuff out of them, and that's not a knock on them. I just -- I don't see a lot of them in North America.

So flipping around, how about you guys? Internationally, obviously, digital lending has been the piece that's allowed you to expand. Where are you in that expansion? And where do you go from here?

Yes. So Europe, went off-line fastest last year. Asia for us, Australia. But in Europe, it went off-line faster, it's still coming back on slower, but we're beginning to see signs of life over there for our PrecisionLender and our cloud lending business. In Europe, we really have -- we're really doing all financing, which is leasing, for the most part in Europe, plus we're doing PrecisionLender deals that we're working on over there, which is -- which provides some interesting opportunities. We're going to be very targeted in our growth in Europe. It's not going to be throw a bunch of money at it and hope that it grows. I want to be very deliberate in how we go grow in that space. And the same thing in Asia. We've done very well in Australia. I think you'll continue to see us expand to other regions in Asia right now, but we're going to be very deliberate and make sure we do it the right way.

In terms of the segments of the market on digital banking, where do you see the biggest opportunities coming out of the pandemic? Is it in the Tier 1 largest? Or is it equally spread across Tier 1, 2, 3?

It's equally spread across them. It's about finding the ones that want to really invest in digital transformation, take -- and play the long game around I'm going to do retail digital banking. I'm going to move to small business. I'm going to move to corporate. I'm going to do lending or vice versa or whatever the track is they want to take.

And when you look at the product portfolio and the road map ahead, is there obvious next adjacencies in terms of what you want to add into the portfolio? I'm not expecting you to give us exactly what they are. But you talked about the 30 products in the [ K ]. Is that really the full suite and you've got everything you need? Or is there more to come?

No. I mean there's got to be more to come. If you look at our product road maps, whether it's on the digital banking or the digital lending or on the banking as a service side, there's full road maps for us to go to continue to invest in and develop new features and functions. There's things that we can -- so we'll build things organically. We've got some more tying together of these products to make a compelling experience for the end user as well as the financial institution to manage the applications. And from a partnership or acquisition perspective or a build perspective, it could be insurance, it could be RegTech, it could be wealth management. There are several of those areas that we could go get into through different avenues, whether it's acquisition, partnering or building on our own.

A little bit of a left field question, but does cryptocurrency enter into the conversations that you have with your clients?

You want to talk about that, Jonathan?

Yes. So I think it's certainly become more topical now. And one of the things that lives within emerging businesses at Q2 is the Innovation Studio. And there, we're really opening up the SDK. SDK is something we filled for our customers back in 2017, about 1.5 years ago, we opened it up to the third-party ecosystem and the mission there is really to be agnostic to vendor and just enable our banks and credit unions to have better access to the third-party ecosystem. That's the approach we're going to take with crypto or Bitcoin is. There are certain vendors that we think are probably ahead of the game in the space and maybe have more of a presence around the regulatory paradigm that's evolving. And so maybe those are the earliest adopters. But at the end of the day, what we want to do is have third parties come, build their integration to the SDK and then we can surface it to our banks and credit unions and say, look, we're not picking winners here. We're not building product, but we want you to have access to good products and services that are out there that enable your customers to offer Bitcoin or buy, sell and hold or whatever the service may be. And we're going to bring it to you in this fashion. And if you want it, the integration will be built and it will be available for you. And so that's really how we're going to enable our customers to have access to things like crypto or Bitcoin over time.

It makes sense. And then the PBP programs that went through, remind us how that impacted your business? And is it creating a tough comparison?

Yes. Honestly, Sterling, we weren't quite sure what the renewal rate was going to be on that heading into this year. So we thought it was going to be a bit of a headwind. But what we found is the renewal rates have been very high. And what was going to be a relatively sizable impact year-over-year is immaterial now. We've seen a lot more renewals than we thought. And so year-over-year, that the impact to revenue is minimal.

All right. Great. And then we talked a bit on margins. Hiring, where are you on your hiring plans? Because I always think about the implementation services in particular, do you have the right staffing to deliver on all the go-lives that we've talked about?

Yes. I mean we had a really strong Q1 in terms of delivered revenue. We continue to schedule out all the key implementations we have, and we're hiring at a very rapid clip. And the team has done a good job of hiring to meet the needs of the customers for those implementations. So talent is always going to be a key focus of ours. And the team has done a good job of getting ahead of that talent identification and hiring, and we're in good shape in that regard.

We talked before we came on just about keeping doing these virtual because of the efficiency. Are you going to be able to maintain some of the implementation efficiencies postpandemic? Or do you envision having to get back on-premise?

I certainly hope so. I mean 1 of the things I think we've proven is that we can deliver. We delivered 2 of the biggest go-lives in the history of the company within 1 week in the fourth quarter of last year so -- which were mostly almost all -- most of the work was done in shelter-in-place. So I certainly hope that's the case, whether it's cutting back on a couple of trips for delivery or having a person that's not on airplanes as much, and so they're able to do more work, but the customer may drive that. They may want to have a little more interaction with us than they had last year. But we're going to -- we're certainly going to hope -- we certainly hopeful that we're going to be able to keep some of those efficiencies.

Jonathan, bless you. And with that, gentlemen, thank you. Really appreciate. It's great seeing you. Thanks for joining us today.

Thank you for having us Sterling and JPMorgan. We appreciate you guys always. Thank you.