Revenue of $79.7 million, up 32 percent
year-over-year and up 3 percent from the previous quarter.
Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of digital
banking and lending solutions, today announced results for its
third quarter ending Sept. 30, 2019.
Third Quarter 2019 Results
- Revenue for the third quarter of $79.7 million, up 32 percent
year-over-year and up 3 percent from the previous quarter.
- GAAP gross margin for the third quarter of 49.3 percent, down
from 50.2 percent in the prior-year quarter. Non-GAAP gross margin
for the third quarter of 53.6 percent, down from 53.8 percent in
the prior-year quarter.
- GAAP net loss for the third quarter of $18.6 million, compared
to GAAP net losses of $8.9 million for the prior-year quarter and
$17.3 million for the second quarter of 2019. Adjusted EBITDA for
the third quarter of $5.6 million, compared to $5.7 million in the
prior-year quarter and $3.2 million in the second quarter of
2019.
“We were very pleased with the results in the quarter,” said
Matt Flake, CEO of Q2. “We built on our sales momentum from the
first half of the year, achieving record cross-sale bookings and
signing a broad range of new deals that included the largest deal
in Cloud Lending’s history. In October, we announced and closed our
acquisition of PrecisionLender, a leading enterprise SaaS provider
of data-driven sales enablement, pricing and portfolio management
solutions. PrecisionLender brings an attractive growth profile to
our business, and its employees and products substantially
strengthen our commercial and data-analytics capabilities.”
Third Quarter Highlights
- Signed a digital banking contract for Q2’s corporate solution
with a top-five credit union in the United States.
- Signed a digital lending contract utilizing Q2’s Cloud Lending
platform with a top-20 financial services company, representing the
largest deal in Cloud Lending’s history.
- Exited the third quarter with approximately 14.1 million
registered users on the Q2 platform, representing 14 percent
year-over-year and 3 percent sequential growth from the second
quarter.
“As disclosed previously, we consummated the acquisition of
PrecisionLender on Oct. 31, 2019 for approximately $510 million,
which we funded entirely from cash on hand,” said Jennifer Harris,
CFO of Q2. “We are currently working through the purchase
accounting with an independent valuation firm.”
Financial Outlook
Q2 Holdings is providing guidance for its fourth quarter 2019 as
follows:
- Total revenue, excluding the impact of the acquisition of
PrecisionLender, of $84.4 million to $86.4 million, which
represents year-over-year growth of 26 percent to 29 percent. We
anticipate PrecisionLender will add approximately $3.5 million to
$4.0 million in revenue to the fourth quarter prior to any related
purchase accounting adjustments, bringing the gross revenue guide
for the quarter to $87.9 million to $90.4 million on a combined
basis, which represents year-over-year growth of 31 percent to 35
percent prior to any related purchase accounting adjustments. Given
the recency of the PrecisionLender acquisition, we are not able to
estimate the related purchase accounting at this time without
unreasonable effort.
- Adjusted EBITDA, excluding the impact of the acquisition of
PrecisionLender, of $11.0 million to $13.0 million. The addition of
PrecisionLender will reduce the total adjusted EBITDA guide for the
fourth quarter to $7.7 million to $10.5 million. GAAP net loss is
the most comparable GAAP measure to adjusted EBITDA. Adjusted
EBITDA differs from GAAP net loss in that it excludes items 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, excluding the impact of the acquisition of
PrecisionLender, of $313.0 million to $315.0 million, which
represents year-over-year growth of 30 percent to 31 percent. We
anticipate PrecisionLender will add approximately $3.5 million to
$4.0 million in revenue to the fourth quarter prior to any related
purchase accounting adjustments, bringing the gross revenue guide
for the year to $316.5 million to $319.0 million on a combined
basis, which represents year-over-year growth of 31 percent to 32
percent prior to any related purchase accounting adjustments. Given
the recency of the PrecisionLender acquisition, we are not able to
estimate the related purchase accounting at this time without
unreasonable effort.
- Adjusted EBITDA, excluding the impact of the acquisition of
PrecisionLender, of $20 million to $22 million. The addition of
PrecisionLender decreases the Adjusted EBITDA guide for the full
year to $16.7 million to $19.5 million on a combined basis.
Adjusted EBITDA differs from GAAP net loss in that it excludes
items 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:
Nov. 7, 2019
Time:
8:30 a.m. EST
Hosts:
Matt Flake, CEO & President /
Jennifer Harris, CFO
Dial in:
US toll free: 1-833-241-4254
International: 1-647-689-4205
Conference ID:
4377947
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
items 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,
the benefits of the PrecisionLender acquisition and its ability to
drive growth and strengthen Q2’s commercial and data-analytics
capabilities, PrecisionLender’s fourth quarter revenue 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 impact on our cash holdings of the
PrecisionLender acquisition and the risk that our debt repayment
obligations may adversely affect our financial condition and cash
flows from operations in the future and that we may not be able to
obtain capital when desired or needed 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)
September 30,
December, 31
2019
2018
(unaudited)
(unaudited)
Assets Current assets: Cash and cash equivalents
$
601,156
$
108,341
Restricted cash
2,152
1,815
Investments
35,696
68,979
Accounts receivable, net
24,349
19,668
Contract assets, current portion
826
598
Prepaid expenses and other current assets
6,114
3,983
Deferred solution and other costs, current portion
13,902
10,501
Deferred implementation costs, current portion
4,638
4,427
Total current assets
688,833
218,312
Property and equipment, net
39,917
34,994
Right of use assets
29,159
-
Deferred solution and other costs, net of current portion
25,384
16,761
Deferred implementation costs, net of current portion
14,884
9,948
Intangible assets, net
54,167
63,296
Goodwill
107,857
107,907
Contract assets, net of current portion
13,981
10,272
Other long-term assets
3,502
2,230
Total assets
$
977,684
$
463,720
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued liabilities
$
56,659
$
31,150
Deferred revenues, current portion
52,047
42,531
Lease liabilities, current portion
7,472
-
Total current liabilities
116,178
73,681
Convertible notes, net of current portion
419,326
182,723
Deferred revenues, net of current portion
25,391
23,063
Deferred rent, net of current portion
-
8,151
Lease liabilities, net of current portion
30,309
-
Other long-term liabilities
4,639
17,202
Total liabilities
595,843
304,820
Stockholders' equity: Common stock
5
4
Additional paid-in capital
609,327
331,355
Accumulated other comprehensive income/(loss)
142
(37
)
Accumulated deficit
(227,633
)
(172,422
)
Total stockholders' equity
381,841
158,900
Total liabilities and stockholders' equity
$
977,684
$
463,720
Q2 Holdings, Inc. Condensed Consolidated Statements of
Comprehensive Loss (in thousands, except per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Revenues
$
79,702
$
60,541
$
228,644
$
173,923
Cost of revenues (1) (2)
40,447
30,140
117,683
86,420
Gross profit
39,255
30,401
110,961
87,503
Operating expenses: Sales and marketing (1)
15,700
11,467
47,371
34,541
Research and development (1)
19,617
12,904
56,392
35,817
General and administrative (1)
13,418
11,237
41,357
32,331
Acquisition related costs
2,758
1,811
7,453
2,325
Amortization of acquired intangibles
912
251
3,032
987
Unoccupied lease charges (3)
244
-
244
658
Total operating expenses
52,649
37,670
155,849
106,659
Loss from operations
(13,394
)
(7,269
)
(44,888
)
(19,156
)
Other income (expense), net
(5,206
)
(1,877
)
(10,630
)
(5,005
)
Loss before income taxes
(18,600
)
(9,146
)
(55,518
)
(24,161
)
Benefit from income taxes
31
287
307
627
Net loss
$
(18,569
)
$
(8,859
)
$
(55,211
)
$
(23,534
)
Other comprehensive loss: Unrealized gain on available-for-sale
investments
37
78
247
56
Foreign currency translation adjustment
(59
)
-
(68
)
-
Comprehensive loss
$
(18,591
)
$
(8,781
)
$
(55,032
)
$
(23,478
)
Net loss per common share: Net loss per common share, basic and
diluted
$
(0.39
)
$
(0.21
)
$
(1.21
)
$
(0.55
)
Weighted average common shares outstanding, basic and diluted
47,782
42,993
45,519
42,597
(1)Includes stock-based
compensation expenses as follows:
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Cost of revenues
$
1,478
$
1,240
$
4,454
$
3,320
Sales and marketing
2,060
1,474
5,462
4,128
Research and development
2,598
1,758
7,083
4,680
General and administrative
3,934
3,026
11,536
8,469
Total stock-based compensation expenses
$
10,070
$
7,498
$
28,535
$
20,597
(2) Includes amortization of
acquired technology of $1.9 million and $0.9 million for the three
months ended September 30, 2019 and 2018, respectively,
and $5.5 million and $2.7 million for the nine months ended
September 30, 2019 and 2018, respectively.
(3) Unoccupied lease charges include costs
related to the early exit from one of our Atlanta facilities and a
portion of our south Austin facility, partially offset by
anticipated sublease income from these facilities.
Q2 Holdings, Inc.
Condensed Consolidated
Statements of Cash Flows
(in thousands)
Nine Months Ended September
30,
2019
2018
(unaudited)
(unaudited)
Cash flows from operating activities: Net loss
$
(55,211
)
$
(23,534
)
Adjustments to reconcile net loss to net cash used in operating
activities: Amortization of deferred implementation, solution and
other costs
9,670
6,234
Depreciation and amortization
17,728
11,441
Amortization of debt issuance costs
1,004
587
Amortization of debt discount
10,150
5,370
Amortization of premiums on investments
124
2
Stock-based compensation expenses
29,376
20,597
Deferred income taxes
(341
)
(429
)
Other non-cash charges
651
771
Changes in operating assets and liabilities
(14,479
)
(24,899
)
Net cash used in operating activities
(1,328
)
(3,860
)
Cash flows from investing activities: Net maturities
(purchases) of investments
33,405
(44,498
)
Purchases of property and equipment
(12,490
)
(12,174
)
Business combinations and asset acquisitions, net of cash acquired
-
(150
)
Purchases of intangible assets
(288
)
(46
)
Net cash provided by (used in) investing activities
20,627
(56,868
)
Cash flows from financing activities: Proceeds from issuance
of common stock, net of issuance costs
195,289
-
Proceeds from issuance of convertible notes, net of issuance costs
307,016
223,167
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
12,313
10,699
Net cash provided by financing activities
473,853
214,546
Net increase in cash, cash equivalents, and restricted cash
493,152
153,818
Cash, cash equivalents, and restricted cash, beginning of period
110,156
60,276
Cash, cash equivalents, and restricted cash, end of period
$
603,308
$
214,094
Q2 Holdings, Inc. Reconciliation of GAAP to Non-GAAP
Measures (in thousands, except per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
GAAP gross profit
$
39,255
$
30,401
$
110,961
$
87,503
Stock-based compensation
1,478
1,240
4,454
3,320
Amortization of acquired technology
1,941
912
5,514
2,736
Acquisition related costs
27
-
98
-
Non-GAAP gross profit
$
42,701
$
32,553
$
121,027
$
93,559
Non-GAAP gross margin: Non-GAAP gross profit
$
42,701
$
32,553
$
121,027
$
93,559
GAAP revenue
79,702
60,541
228,644
173,923
Non-GAAP gross margin
53.6
%
53.8
%
52.9
%
53.8
%
GAAP sales and marketing expense
$
15,700
$
11,467
$
47,371
$
34,541
Stock-based compensation
(2,060
)
(1,474
)
(5,462
)
(4,128
)
Non-GAAP sales and marketing expense
$
13,640
$
9,993
$
41,909
$
30,413
GAAP research and development expense
$
19,617
$
12,904
$
56,392
$
35,817
Stock-based compensation
(2,598
)
(1,758
)
(7,083
)
(4,680
)
Non-GAAP research and development expense
$
17,019
$
11,146
$
49,309
$
31,137
GAAP general and administrative expense
$
13,418
$
11,237
$
41,357
$
32,331
Stock-based compensation
(3,934
)
(3,026
)
(11,536
)
(8,469
)
Non-GAAP general and administrative expense
$
9,484
$
8,211
$
29,821
$
23,862
GAAP operating loss
$
(13,394
)
$
(7,269
)
$
(44,888
)
$
(19,156
)
Stock-based compensation
10,070
7,498
28,535
20,597
Acquisition related costs
2,784
1,811
7,550
2,325
Amortization of acquired technology
1,941
912
5,514
2,736
Amortization of acquired intangibles
912
251
3,032
987
Unoccupied lease charges
244
-
244
658
Non-GAAP operating income (loss)
$
2,557
$
3,203
$
(13
)
$
8,147
GAAP net loss
$
(18,569
)
$
(8,859
)
$
(55,211
)
$
(23,534
)
Stock-based compensation
10,070
7,498
28,535
20,597
Acquisition related costs
2,784
1,811
7,550
2,325
Amortization of acquired technology
1,941
912
5,514
2,736
Amortization of acquired intangibles
912
251
3,032
987
Unoccupied lease charges
244
-
244
658
Amortization of debt discount and issuance costs
5,380
2,523
11,153
5,957
Non-GAAP net income
$
2,762
$
4,136
$
817
$
9,726
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
47,782
42,993
45,519
42,597
Weighted-average effect of potentially dilutive shares
2,560
2,386
2,600
2,277
Pro forma diluted weighted-average number of common shares
50,342
45,379
48,119
44,874
Calculation of non-GAAP income per share: Non-GAAP net
income
$
2,762
$
4,136
$
817
$
9,726
Pro forma diluted weighted-average number of common shares
50,342
45,379
48,119
44,874
Non-GAAP net income per share
$
0.05
$
0.09
$
0.02
$
0.22
Reconciliation of GAAP net loss to adjusted EBITDA: GAAP net
loss
$
(18,569
)
$
(8,859
)
$
(55,211
)
$
(23,534
)
Depreciation and amortization
5,932
3,689
17,728
11,441
Stock-based compensation
10,070
7,498
28,535
20,597
Benefit from income taxes
(31
)
(287
)
(307
)
(627
)
Interest (income) expense, net
5,157
1,877
10,508
5,005
Acquisition related costs
2,784
1,811
7,550
2,325
Unoccupied lease charges
244
-
244
658
Adjusted EBITDA
$
5,587
$
5,729
$
9,047
$
15,865
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191106006004/en/
MEDIA CONTACT: Beth
Williams Q2 Holdings,
Inc. O: (512)
682-4285 beth.williams@q2ebanking.com
INVESTOR
CONTACT: Josh Yankovich or
Steve Calk Q2 Holdings,
Inc. O: (512)
682-4463 josh.yankovich@q2ebanking.com
stephen.calk@q2ebanking.com
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