Total second quarter revenue of $77.6 million,
up 33 percent year-over-year, and up 9 percent from the previous
quarter.
Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of digital
banking and lending solutions, today announced results for its
second quarter ending June 30, 2019.
Second Quarter 2019 Results
- Revenue for the second quarter of $77.6 million, up 33 percent
year-over-year and up 9 percent from the previous quarter.
- GAAP gross margin for the second quarter of 48.4 percent, down
from 50.0 percent one year ago. Non-GAAP gross margin for the
second quarter of 52.8 percent, down from 53.3 percent one year
ago. The year-over-year decline is primarily attributable to
investment in the Cloud Lending and Gro acquisitions closed in the
fourth quarter of 2018.
- GAAP net loss for the second quarter of $17.3 million, which
compares to $8.6 million for the second quarter of 2018, and $19.3
million for the first quarter of 2019. Adjusted EBITDA for the
second quarter of $3.2 million, down from $5.1 million one year ago
and up from $0.3 million for the first quarter of 2019. The
year-over-year decline is a result of investment in the
acquisitions which were closed in the fourth quarter of 2018.
“We closed out the first half of the year on a strong note,”
said Matt Flake, CEO of Q2. “We hosted another record client
conference in May, and continued to see cross-pollination among our
digital banking, Cloud Lending and Q2 Open platforms, helping us
out-perform with respect to bookings relative to our expectations
for the first two quarters. Given our sales execution, we plan to
continue investing in integration, innovation and delivering
successful client outcomes.”
Second Quarter Highlights
- Signed three Tier 1 banks in the quarter, including a $26
billion bank holding company in the Northeast.
- Signed digital lending contracts utilizing the Cloud Lending
platform with two current Q2 platform clients, including a $14
billion bank on the West Coast.
- Exited the quarter with approximately 13.6 million registered
users on the Q2 platform, representing 4 percent sequential and 19
percent year-over-year growth.
- Completed concurrent convertible note and common stock
offerings, raising net proceeds of approximately $462 million.
“We ended the quarter with cash, cash equivalents and
investments of $617.7 million as a result of the capital raises in
the quarter,” said Jennifer Harris, CFO of Q2. “With our continued
strong bookings and revenue performance, we are raising our full
year revenue guidance and intend to invest the overachievement in
the business in order to capitalize on the opportunity we see in
front of us.”
Financial Outlook
Q2 Holdings is providing guidance for its third quarter 2019 as
follows:
- Total revenue of $78.6 million to $79.6 million, which would
represent year-over-year growth of 30 percent to 31 percent.
- Adjusted EBITDA of $5.0 million to $5.5 million. GAAP net loss
is the most comparable GAAP measure to adjusted EBITDA. Adjusted
EBITDA differs from GAAP net loss in that it excludes things such
as depreciation and amortization, stock-based compensation,
acquisition-related costs, interest, income taxes and unoccupied
lease charges. 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 2019 as
follows:
- Total revenue of $313.0 million to $315.0 million, which would
represent year-over-year growth of 30 percent to 31 percent.
- Adjusted EBITDA of $20.0 million to $22.0 million. Adjusted
EBITDA differs from GAAP net loss in that it excludes things such
as depreciation and amortization, stock-based compensation,
acquisition-related costs, interest, income taxes and unoccupied
lease charges. 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:
August 8, 2019
Time:
8:30 a.m. EDT
Hosts:
Matt Flake, CEO and President / Jennifer
Harris, CFO
Dial in:
US toll free: 1-833-241-4254
International: 1-647-689-4205
Conference ID:
7649659
Please join the conference call at least 10 minutes early to
ensure the line is connected. A live webcast of the conference call
and financial results will be accessible from the investor
relations section of the Q2 website at
http://investors.q2ebanking.com/.
An archived replay of the webcast will be available at this
website on a temporary basis shortly after the call.
About Q2 Holdings, Inc.
Q2, a financial experience company headquartered in Austin,
Texas, builds stronger communities by strengthening financial
institutions that serve them. We empower banks, credit unions and
other financial services providers to be the ever-present companion
on an account holder’s financial journey—helping our customers
unlock new opportunities, grow their businesses and improve
efficiencies. 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 and bookings momentum,
Q2’s ability to capitalize on such momentum to invest in
integration, innovation and delivering successful client outcomes,
optimism about Q2’s performance in 2019, the opportunities
presented by the Cloud Lending and Gro acquisitions and Q2’s
ability to capitalize on them, including through accelerated
investment, anticipated margins for the remainder of 2019 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, new markets with Alt-FIs and
FinTechs and new products and services; (b) the risk that the
market for Q2’s solutions does not grow as anticipated, in
particular with respect to Tier 1 customers and Alt-FI and FinTech
customers; (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 may have 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) the risks
associated with anticipated higher operating expenses in 2019 and
beyond; (q) litigation related to intellectual property and other
matters and any related claims, negotiations and settlements; (r)
the risks associated with further consolidation in the financial
services industry; (s) risks associated with selling our solutions
internationally; and (t) the risk that our debt repayment
obligations may adversely affect our financial condition and cash
flows from operations in the future and that we in the future we
may not be able to obtain capital when desired on favorable
terms.
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 Relations 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)
June 30,
December, 31
2019
2018
(unaudited)
(unaudited)
Assets
Current assets: Cash and cash equivalents
$
582,889
$
108,341
Restricted cash
2,158
1,815
Investments
34,810
68,979
Accounts receivable, net
26,591
19,668
Contract assets, current portion
771
598
Prepaid expenses and other current assets
5,526
3,983
Deferred solution and other costs, current portion
12,726
10,501
Deferred implementation costs, current portion
4,400
4,427
Total current assets
669,871
218,312
Property and equipment, net
39,732
34,994
Right of use assets
24,444
-
Deferred solution and other costs, net of current portion
22,618
16,761
Deferred implementation costs, net of current portion
13,238
9,948
Intangible assets, net
57,213
63,296
Goodwill
107,857
107,907
Contract assets, net of current portion
13,277
10,272
Other long-term assets
3,532
2,230
Total assets
$
951,782
$
463,720
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued liabilities
$
46,933
$
31,150
Deferred revenues, current portion
46,023
42,531
Lease liabilities, current portion
6,725
-
Total current liabilities
99,681
73,681
Convertible notes, net of current portion
413,890
182,723
Deferred revenues, net of current portion
25,317
23,063
Deferred rent, net of current portion
-
8,151
Lease liabilities, net of current portion
26,533
-
Other long-term liabilities
499
17,202
Total liabilities
565,920
304,820
Stockholders' equity: Common stock
5
4
Additional paid-in capital
594,757
331,355
Accumulated other comprehensive income/(loss)
164
(37
)
Accumulated deficit
(209,064
)
(172,422
)
Total stockholders' equity
385,862
158,900
Total liabilities and stockholders' equity
$
951,782
$
463,720
Q2 Holdings, Inc. Condensed Consolidated Statements of
Comprehensive Loss (in thousands, except per share data)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Revenues
$
77,646
$
58,574
$
148,942
$
113,382
Cost of revenues (1) (2)
40,052
29,303
77,236
56,280
Gross profit
37,594
29,271
71,706
57,102
Operating expenses: Sales and marketing (1)
15,866
12,108
31,671
23,074
Research and development (1)
19,118
11,756
36,775
22,913
General and administrative (1)
14,079
10,798
27,939
21,094
Acquisition related costs
1,977
258
4,695
514
Amortization of acquired intangibles
905
368
2,120
736
Unoccupied lease charges (3)
-
658
-
658
Total operating expenses
51,945
35,946
103,200
68,989
Loss from operations
(14,351
)
(6,675
)
(31,494
)
(11,887
)
Other income (expense), net
(3,217
)
(2,105
)
(5,424
)
(3,128
)
Loss before income taxes
(17,568
)
(8,780
)
(36,918
)
(15,015
)
Benefit from income taxes
237
153
276
340
Net loss
$
(17,331
)
$
(8,627
)
$
(36,642
)
$
(14,675
)
Other comprehensive loss: Unrealized gain (loss) on
available-for-sale investments
97
2
210
(22
)
Foreign currency translation adjustment
(22
)
-
(10
)
-
Comprehensive loss
$
(17,256
)
$
(8,625
)
$
(36,442
)
$
(14,697
)
Net loss per common share: Net loss per common share, basic and
diluted
$
(0.39
)
$
(0.20
)
$
(0.83
)
$
(0.35
)
Weighted average common shares outstanding, basic and diluted
44,978
42,605
44,382
42,389
(1) Includes stock-based
compensation expenses as follows:
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Cost of revenues
$
1,428
$
1,065
$
2,976
$
2,080
Sales and marketing
1,596
1,428
3,402
2,654
Research and development
2,473
1,566
4,485
2,922
General and administrative
4,072
2,945
7,602
5,443
Total stock-based compensation expenses
$
9,569
$
7,004
$
18,465
$
13,099
(2) Includes amortization of
acquired technology of $1.9 million and $0.9 million for the three
months ended June 30, 2019 and 2018, respectively, and $3.6 million
and $1.8 million for the six months ended June 30, 2019 and 2018,
respectively.
(3) Unoccupied lease charges
include costs related to the early exit from a portion of our south
Austin facility, partially offset by anticipated sublease income
from that facility.
Q2 Holdings, Inc. Condensed Consolidated Statements of
Cash Flows (in thousands)
Six Months Ended June
30,
2019
2018
(unaudited)
(unaudited)
Cash flows from operating activities: Net loss
$
(36,642
)
$
(14,675
)
Adjustments to reconcile net loss to net cash used in operating
activities: Amortization of deferred implementation, solution and
other costs
6,056
4,265
Depreciation and amortization
11,796
7,752
Amortization of debt issuance costs
545
346
Amortization of debt discount
5,230
3,089
Amortization of premiums on investments
183
21
Stock-based compensation expenses
19,040
13,099
Deferred income taxes
(347
)
(61
)
Other non-cash charges
(112
)
696
Changes in operating assets and liabilities
(24,428
)
(35,816
)
Cash used in operating activities
(18,679
)
(21,284
)
Cash flows from investing activities: Net redemptions
(purchases) of investments
34,196
(60,331
)
Purchases of property and equipment
(10,864
)
(11,154
)
Business combinations and asset acquisitions, net of cash acquired
-
(150
)
Purchases of intangible assets
(288
)
-
Cash provided by (used in) investing activities
23,044
(71,635
)
Cash flows from financing activities: Proceeds from issuance
of common stock, net of issuance costs
195,581
-
Proceeds from issuance of convertible notes, net of issuance costs
307,288
223,185
Purchase of capped call transactions
(40,765
)
-
Purchase of convertible notes bond hedge
-
(41,699
)
Proceeds from issuance of warrants
-
22,379
Proceeds from exercise of stock options to purchase common stock
8,422
7,831
Net cash provided by financing activities
470,526
211,696
Net increase in cash, cash equivalents, and restricted cash
474,891
118,777
Cash, cash equivalents, and restricted cash, beginning of period
110,156
60,276
Cash, cash equivalents, and restricted cash, end of period
$
585,047
$
179,053
Q2 Holdings, Inc. Reconciliation of GAAP to Non-GAAP
Measures (in thousands, except per share data)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
(unaudited) (unaudited) (unaudited) (unaudited) GAAP gross profit
$
37,594
$
29,271
$
71,706
$
57,102
Stock-based compensation
1,428
1,065
2,976
2,080
Amortization of acquired technology
1,941
912
3,573
1,822
Acquisition related costs
71
-
71
-
Non-GAAP gross profit
$
41,034
$
31,248
$
78,326
$
61,004
Non-GAAP gross margin: Non-GAAP gross profit
$
41,034
$
31,248
$
78,326
$
61,004
GAAP revenue
77,646
58,574
148,942
113,382
Non-GAAP gross margin
52.8
%
53.3
%
52.6
%
53.8
%
GAAP sales and marketing expense
$
15,866
$
12,108
$
31,671
$
23,074
Stock-based compensation
(1,596
)
(1,428
)
(3,402
)
(2,654
)
Non-GAAP sales and marketing expense
$
14,270
$
10,680
$
28,269
$
20,420
GAAP research and development expense
$
19,118
$
11,756
$
36,775
$
22,913
Stock-based compensation
(2,473
)
(1,566
)
(4,485
)
(2,922
)
Non-GAAP research and development expense
$
16,645
$
10,190
$
32,290
$
19,991
GAAP general and administrative expense
$
14,079
$
10,798
$
27,939
$
21,094
Stock-based compensation
(4,072
)
(2,945
)
(7,602
)
(5,443
)
Non-GAAP general and administrative expense
$
10,007
$
7,853
$
20,337
$
15,651
GAAP operating loss
$
(14,351
)
$
(6,675
)
$
(31,494
)
$
(11,887
)
Stock-based compensation
9,569
7,004
18,465
13,099
Acquisition related costs
2,048
258
4,766
514
Amortization of acquired technology
1,941
912
3,573
1,822
Amortization of acquired intangibles
905
368
2,120
736
Unoccupied lease charges
-
658
-
658
Non-GAAP operating income (loss)
$
112
$
2,525
$
(2,570
)
$
4,942
GAAP net loss
$
(17,331
)
$
(8,627
)
$
(36,642
)
$
(14,675
)
Stock-based compensation
9,569
7,004
18,465
13,099
Acquisition related costs
2,048
258
4,766
514
Amortization of acquired technology
1,941
912
3,573
1,822
Amortization of acquired intangibles
905
368
2,120
736
Unoccupied lease charges
-
658
-
658
Amortization of debt discount and issuance costs
3,227
2,213
5,774
3,435
Non-GAAP net income (loss)
$
359
$
2,786
$
(1,944
)
$
5,589
Reconciliation from diluted weighted-average number of
common shares as reported to pro forma diluted weighted average
number of common shares Diluted weighted-average number of common
shares, as reported
44,978
42,605
44,382
42,389
Weighted-average effect of potentially dilutive shares
2,628
2,389
-
2,200
Pro forma diluted weighted-average number of common shares
47,606
44,994
44,382
44,589
Calculation of non-GAAP income (loss) per share: Non-GAAP
net income (loss)
$
359
$
2,786
$
(1,944
)
$
5,589
Pro forma diluted weighted-average number of common shares
47,606
44,994
44,382
44,589
Non-GAAP net income (loss) per share
$
0.01
$
0.06
$
(0.04
)
$
0.13
Reconciliation of GAAP net loss to adjusted EBITDA: GAAP net
loss
$
(17,331
)
$
(8,627
)
$
(36,642
)
$
(14,675
)
Depreciation and amortization
5,975
3,874
11,796
7,752
Stock-based compensation
9,569
7,004
18,465
13,099
Benefit from income taxes
(237
)
(153
)
(276
)
(340
)
Interest (income) expense, net
3,173
2,105
5,351
3,128
Acquisition related costs
2,048
258
4,766
514
Unoccupied lease charges
-
658
-
658
Adjusted EBITDA
$
3,197
$
5,119
$
3,460
$
10,136
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190807005783/en/
MEDIA CONTACT: Emma
Chase Red Fan
Communications O: (512)
551-9253 / C: (512) 917-4319 emma@redfancommunications.com
INVESTOR CONTACT: Josh
Yankovich Q2 Holdings,
Inc. O: (512)
682-4463 josh.yankovich@q2ebanking.com
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