QTWO Q2 Holdings Inc

Total first quarter revenue of $44.5 million, up 32 percent year-over-year

Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of secure, cloud-based digital banking solutions for community-focused financial institutions, today announced results for its first quarter ending March 31, 2017.

First Quarter 2017 Results

• Revenue for the first quarter of $44.5 million, up 32 percent year-over-year and up 6 percent sequentially.
• GAAP gross margin for the first quarter of 48.9 percent, up from 47.2 percent one year ago. Non-GAAP gross margin for the first quarter of 52.5 percent, up from 50.8 percent one year ago.
• GAAP net loss for the first quarter of $7.0 million, which compares to a GAAP net loss of $9.7 million for the first quarter of 2016. Adjusted EBITDA for the first quarter of positive $1.1 million, an improvement from negative $2.4 million one year ago.

“Our clients’ growth fueled strong organic user growth in the first quarter, and we experienced wins in both the bank and credit union markets,” said Matt Flake, CEO of Q2. “We also recently hosted CONNECT, our annual conference, and I’m encouraged by the fact that our clients feel optimistic about their business environments and the future direction of the Q2 Platform.”

First Quarter 2017 Highlights

• Hosted CONNECT, Q2’s annual client conference, in early April with record attendance from both client and prospect financial institutions.
• Delivered multiple Tier 1 customers into production on Q2’s corporate banking platform.
• Launched new Active-Active disaster recovery solution designed to noticeably mitigate downtime and deliver increased performance in the event of an outage. Reflective of Q2’s commitment of over $20 million over the last five years in data center hosting solutions.
• Exited the first quarter with approximately 8.9 million registered users on the Q2 Platform, representing 4 percent sequential and 32 percent year-over-year growth.

Financial Outlook

Q2 Holdings is providing guidance for its second quarter 2017 as follows:

• Total revenue of $46.9 to $47.5 million, which would represent year-over-year growth of 30 percent to 32 percent.
• Adjusted EBITDA of positive $600 thousand to $1.0 million. GAAP net loss is the most comparable GAAP measure to adjusted EBITDA. Adjusted EBITDA differs from GAAP net loss in that it excludes depreciation and amortization, stock based compensation, acquisition-related costs, interest, and income taxes. Q2 Holdings is unable to predict with reasonable certainty the ultimate outcome of these exclusions without unreasonable effort. Therefore, Q2 Holdings has not provided guidance for GAAP net loss or a reconciliation of the foregoing forward-looking adjusted EBITDA guidance to GAAP net loss.

Q2 Holdings is providing guidance for the full-year 2017 as follows:

• Total revenue of $192.3 to $194.3 million, which would represent year-over-year growth of 28 percent to 29 percent.
• Adjusted EBITDA of positive $6.5 million to $7.7 million. Adjusted EBITDA differs from GAAP net loss in that it excludes depreciation and amortization, stock based compensation, acquisition-related costs, interest, and income taxes. Q2 Holdings is unable to predict with reasonable certainty the ultimate outcome of these exclusions without unreasonable effort. Therefore, Q2 Holdings has not provided guidance for GAAP net loss or a reconciliation of the foregoing forward-looking adjusted EBITDA guidance to GAAP net loss.

Conference Call Details

Date:

    May 4, 2017

Time:

8:30 a.m. EDT

Hosts:

Matt Flake, CEO / Jennifer Harris, CFO

Dial in:

US toll free: 1-877-201-0168

International:

1-647-788-4901

Conference ID:

8089225  

Please join the conference call at least 10 minutes before start time to ensure the line is connected. A live webcast of the conference call will be accessible from the investor services section of the Q2 Holdings, Inc. website at http://investors.q2ebanking.com/.

A replay of the webcast will also be available at this website on a temporary basis shortly after the call.

About Q2 Holdings, Inc.

Q2 Holdings, Inc. (Q2) is a leading provider of secure, cloud-based digital banking solutions headquartered in Austin, Texas. Q2 is driven by a culture of partnership and dedication to empowering community-focused banks and credit unions with digital banking solutions that help them stand apart, scale smart and grow beyond with retail and commercial account holders. Q2’s solutions are designed to deliver a compelling, secure and consistent user experience on any device and enable customers to improve account holder retention and to create incremental sales opportunities. To learn more about Q2, visit www.q2ebanking.com.

Use of Non-GAAP Measures

Q2 uses the following non-GAAP financial measures: adjusted EBITDA; non-GAAP gross margin; non-GAAP gross profit; non-GAAP sales and marketing expense; non-GAAP research and development expense; non-GAAP general and administrative expense; non-GAAP operating loss; and, non-GAAP net loss. Management believes that these non-GAAP financial measures are useful measures of operating performance because they exclude items that Q2 does not consider indicative of its core performance.

In the case of adjusted EBITDA, Q2 adjusts net loss for such things as interest, taxes, depreciation and amortization, stock-based compensation, acquisition-related costs, amortization of technology and intangibles, and unoccupied lease charges. In the case of non-GAAP gross margin and non-GAAP gross profit, Q2 adjusts gross profit and gross margin for stock-based compensation and amortization of acquired technology. In the case of non-GAAP sales and marketing expense, non-GAAP research and development expense, and non-GAAP general and administrative expense, Q2 adjusts the corresponding GAAP expense to exclude stock-based compensation. In the case of non-GAAP operating loss and non-GAAP net loss, Q2 adjusts operating loss and net loss, respectively, for stock-based compensation, acquisition related-costs, amortization of acquired technology, amortization of acquired intangibles, and unoccupied lease charges.

These non-GAAP measures should be considered in addition to, not as a substitute for or superior to, the closest GAAP measures, or other financial measures prepared in accordance with GAAP. A reconciliation to the closest GAAP measures of these non-GAAP measures is contained in tabular form on the attached unaudited condensed consolidated financial statements.

Q2’s management uses these non-GAAP measures as measures of operating performance; to prepare Q2’s annual operating budget; to allocate resources to enhance the financial performance of Q2’s business; to evaluate the effectiveness of Q2’s business strategies; to provide consistency and comparability with past financial performance; to facilitate a comparison of Q2’s results with those of other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and in communication with our board of directors concerning Q2’s financial performance.

Forward-looking Statements

This press release contains forward-looking statements, including statements about positive sales momentum, optimism about the banking business environment and the future direction of Q2 products and execution, and Q2’s quarterly and annual financial guidance. The forward-looking statements contained in this press release are based upon Q2’s historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates or expectations will be achieved. Factors that could cause actual results to differ materially from those described herein include risks related to: (a) the risk of increased competition in its existing markets and as it enters new sections of the market with Tier 1 customers and new products and services; (b) the risk that the market for Q2’s solutions does not grow as anticipated; (c) the risk that Q2’s increased focus on selling to larger Tier 1 customers may result in greater uncertainty and variability in Q2’s business and sales results; (d) the risk that changes in Q2’s market, business or sales organization negatively impacts its ability to sell its products and services; (e) the challenges and costs associated with selling, implementing and supporting Q2’s solutions, particularly for larger customers with more complex requirements and longer implementation processes; (f) the risk that errors, interruptions or delays in Q2’s products or services or Web hosting negatively impacts Q2’s business and sales; (g) risks associated with data breaches and breaches of security measures within Q2’s products, systems and infrastructure and the resultant harm to Q2’s business and its ability to sell its products and services; (h) the impact that a slowdown in the economy, financial markets, and credit markets has on Q2’s customers and Q2’s business sales cycles, prospects and customers’ spending decisions and timing of implementation decisions, particularly in regions where a significant number of Q2’s customers are concentrated; (i) the difficulties and risks associated with developing and selling complex new solutions and enhancements with the technical and regulatory specifications and functionality required by customers and governmental authorities; (j) the risks inherent in technology and implementation partnerships that could cause harm to Q2’s business; (k) the difficulties and costs Q2 may encounter with complex implementations of its solutions and the resulting impact on reputation and the timing of its revenue from any delayed implementations; (l) the risk that Q2 will not be able to maintain historical contract terms such as pricing and duration; (m) the risks associated with managing growth and the challenges associated with improving operations and hiring, retaining and motivating employees to support such growth; (n) the risk that modifications or negotiations of contractual arrangements will be necessary during Q2’s implementations of its solutions or the general risks associated with the complexity of Q2’s customer arrangements; (o) the risks associated with integrating acquired companies and successfully selling and maintaining their solutions; (p) litigation related to intellectual property and other matters and any related claims, negotiations and settlements; and (q) the risks associated with further consolidation in the financial services industry.

Additional information relating to the uncertainty affecting the Q2 business are contained in Q2’s filings with the Securities and Exchange Commission. These documents are available on the SEC Filings section of the Investor Services section of Q2’s website at http://investors.q2ebanking.com/. These forward-looking statements represent Q2’s expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Q2 disclaims any obligations to update or alter these forward-looking statements in the future, whether as a result of new information, future events or otherwise.

    Q2 Holdings, Inc. Condensed Consolidated Balance Sheets (in thousands)             March 31, December 31, 2017 2016 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 42,756 $ 54,873 Restricted cash 1,315 1,315 Investments 39,409 42,249 Accounts receivable, net 8,449 12,240 Prepaid expenses and other current assets 6,017 3,215 Deferred solution and other costs, current portion 8,422 8,839 Deferred implementation costs, current portion   3,275     2,938   Total current assets 109,643 125,669 Property and equipment, net 31,701 27,480 Deferred solution and other costs, net of current portion 12,853 11,125 Deferred implementation costs, net of current portion 8,110 8,096 Intangible assets, net 15,907 15,208 Goodwill 12,876 12,876 Other long-term assets   496     526   Total assets $ 191,586   $ 200,980     Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued liabilities $ 22,836 $ 29,088 Deferred revenues, current portion   28,781     30,123   Total current liabilities 51,617 59,211 Deferred revenues, net of current portion 29,935 31,707 Deferred rent, net of current portion 9,181 9,466 Other long-term liabilities   473     361   Total liabilities 91,206 100,745 Stockholders' equity: Common stock 4 4 Treasury stock (455 ) (417 ) Additional paid-in capital 233,876 226,485 Accumulated other comprehensive loss (55 ) (54 ) Accumulated deficit   (132,990 )   (125,783 ) Total stockholders' equity   100,380     100,235   Total liabilities and stockholders' equity $ 191,586   $ 200,980       Q2 Holdings, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands, except per share data)         Three Months Ended March 31, 2017 2016 (unaudited) (unaudited)   Revenues $ 44,534 $ 33,759 Cost of revenues (1) (2)   22,772     17,814   Gross profit 21,762 15,945   Operating expenses: Sales and marketing (1) 9,878 8,207 Research and development (1) 9,651 7,903 General and administrative (1) 8,452 7,421 Acquisition related costs 348 1,482 Amortization of acquired intangibles   371     368   Total operating expenses   28,700     25,381   Loss from operations (6,938 ) (9,436 ) Other income, net   34     14   Loss before income taxes (6,904 ) (9,422 ) Provision for income taxes   (136 )   (230 ) Net loss $ (7,040 ) $ (9,652 ) Other comprehensive loss Unrealized gain (loss) on available-for-sale investments   (1 )   89   Comprehensive loss $ (7,041 ) $ (9,563 ) Net loss per common share: Net loss per common share, basic and diluted $ (0.17 ) $ (0.25 ) Weighted average common shares outstanding, basic and diluted   40,630     39,024    

(1)

Includes stock-based compensation expenses as follows: Three Months Ended March 31, 2017 2016 Cost of revenues $ 724 $ 406 Sales and marketing 631 435 Research and development 945 632 General and administrative   1,897     1,132   Total stock-based compensation expenses $ 4,197   $ 2,605    

(2)

Includes amortization of acquired technology of $0.9 million and $0.8 million for the three months ended March 31, 2017 and 2016, respectively.     Q2 Holdings, Inc. Condensed Consolidated Statements of Cash Flows (in thousands)             Three Months Ended March 31, 2017 2016 (unaudited) (unaudited) Cash flows from operating activities: Net loss $ (7,040 ) $ (9,652 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Amortization of deferred implementation, solution and other costs 1,719 1,636 Depreciation and amortization 3,525 2,927 Amortization of debt issuance costs 24 24 Amortization of premiums on investments 69 102 Stock-based compensation expenses 4,197 2,605 Deferred income taxes 117 70 Other non-cash charges (6 ) 24 Changes in operating assets and liabilities   (13,273 )   2,451   Cash provided by (used in) operating activities (10,668 ) 187 Cash flows from investing activities: Net redemptions (purchases) of investments 2,770 (6,183 ) Purchases of property and equipment (5,361 ) (3,590 ) Business combinations and asset acquisitions, net of cash acquired (1,316 ) (95 ) Capitalization of software development costs (532 ) (563 ) Purchases of intangible assets   -     (75 ) Cash used in investing activities (4,439 ) (10,506 ) Cash flows from financing activities: Payments on financing obligations and capital leases, net - (2,187 ) Proceeds from issuance of common stock   2,990     716   Net cash provided by (used in) financing activities   2,990     (1,471 ) Net decrease in cash and cash equivalents (12,117 ) (11,790 ) Cash and cash equivalents, beginning of period   54,873     67,049   Cash and cash equivalents, end of period $ 42,756   $ 55,259       Q2 Holdings, Inc. Reconciliation of GAAP to Non-GAAP Measures (in thousands, except per share data)             Three Months Ended March 31, 2017 2016 (unaudited) (unaudited) GAAP gross profit $ 21,762 $ 15,945 Stock-based compensation 724 406 Amortization of acquired technology   886     798   Non-GAAP gross profit $ 23,372   $ 17,149     Non-GAAP gross margin: Non-GAAP gross profit $ 23,372 $ 17,149 GAAP revenue   44,534     33,759   Non-GAAP gross margin   52.5 %   50.8 %   GAAP sales and marketing expense $ 9,878 $ 8,207 Stock-based compensation   (631 )   (435 ) Non-GAAP sales and marketing expense $ 9,247   $ 7,772     GAAP research and development expense $ 9,651 $ 7,903 Stock-based compensation   (945 )   (632 ) Non-GAAP research and development expense $ 8,706   $ 7,271     GAAP general and administrative expense $ 8,452 $ 7,421 Stock-based compensation   (1,897 )   (1,132 ) Non-GAAP general and administrative expense $ 6,555   $ 6,289     GAAP operating loss $ (6,938 ) $ (9,436 ) Stock-based compensation 4,197 2,605 Acquisition related costs 348 1,482 Amortization of acquired technology 886 798 Amortization of acquired intangibles   371     368   Non-GAAP operating loss $ (1,136 ) $ (4,183 )   GAAP net loss $ (7,040 ) $ (9,652 ) Stock-based compensation 4,197 2,605 Acquisition related costs 348 1,482 Amortization of acquired technology 886 798 Amortization of acquired intangibles   371     368   Non-GAAP net loss $ (1,238 ) $ (4,399 )   Reconciliation of GAAP net loss to adjusted EBITDA: GAAP net loss $ (7,040 ) $ (9,652 ) Depreciation and amortization 3,525 2,927 Stock-based compensation 4,197 2,605 Provision for income taxes 136 230 Interest income, net (34 ) (14 )

Acquisition related costs

  348     1,482   Adjusted EBITDA $ 1,132   $ (2,422 )  

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Media Contact:Red Fan CommunicationsEmma Chase, 512-551-9253C: 512-917-4319emma@redfancommunications.comorInvestor Contact:Q2 Holdings, Inc.Bob Gujavarty, 512-439-3447bobby.gujavarty@q2ebanking.com