Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of digital
transformation solutions for banking and lending, today announced
results for its first quarter ending March 31, 2020.
“Over the past 90 days, we have been carefully monitoring and
assessing the effects of COVID-19, with our top priority being to
protect the health and safety of our employees, our customers and
our partners and suppliers. As our customers shift their near-term
focus to ensuring business continuity and providing immediate
support to the communities they serve, we are aligning our
resources to correspond with those objectives and are continuing to
strategically invest across our organization to position us to
increase revenues and to improve operating efficiencies over the
longer term. We are handling record login volumes as our customers
have played a pivotal role in the disbursement of funds to both
consumers and small businesses as a part of the Coronavirus Aid,
Relief, and Economic Security (CARES) Act. We believe that although
the COVID-19 pandemic creates significant risks and uncertainties
for our clients, their customers, our partners and suppliers, our
employees and our business generally, it also could accelerate the
transition to digital financial solutions and that our portfolio of
digital financial services solutions and our position and
reputation in the market provide us with an opportunity to continue
to serve clients and grow our business.
“I am encouraged by how our employees and customers have
responded to the crisis thus far, and we will continue to navigate
these unprecedented challenges together,” said Matt Flake, CEO of
Q2.
GAAP Results for the First Quarter 2020
- Revenue for the first quarter of $92.4 million, up 30 percent
year-over-year and up 6 percent from the previous quarter.
- GAAP gross margin for the first quarter of 42.5 percent, down
from 47.8 percent for the prior-year quarter and down from 48.4
percent for the fourth quarter of 2019.
- GAAP net loss for the first quarter of $34.1 million, compared
to GAAP net losses of $19.3 million for the prior-year quarter and
$15.7 million for the fourth quarter of 2019.
Non-GAAP Results for the First Quarter 2020
- Non-GAAP revenue for the first quarter of $93.8 million, up 32
percent year-over-year and up 6 percent from the previous
quarter.
- Non-GAAP gross margin for the first quarter of 53.1 percent, up
from 52.3 percent for the prior-year quarter and down from 56.8
percent for the fourth quarter of 2019.
- Adjusted EBITDA for the first quarter of negative $0.1 million,
compared to $0.3 million for the prior-year quarter and $10.6
million for the fourth quarter of 2019.
For a reconciliation of our GAAP to non-GAAP results, please see
the tables below.
“We had a solid first quarter, even as COVID-19 began to impact
our customers and us in March,” said Matt Flake, CEO of Q2. “I was
encouraged by our sales performance and our ability to execute
deals in March as we shifted to working remotely. We added two new
Tier 1 digital banking customers in addition to two new Tier 1
digital lending customers. Our delivery and customer success teams
aided in the onboarding of approximately 800,000 users as the
importance of our digital channel continued to grow due to social
distancing restrictions. As our customers shift their time and
resources to mitigating the impact of COVID-19, we anticipate a
slowdown in new business bookings along with decisions to delay
implementations in the coming months. Nevertheless, we will remain
focused on providing our customers with exceptional service and
reliability as long as this environment persists, and remain
confident that we will emerge from this crisis in a strong position
to continue our leadership in digital transformation across
financial services.”
First Quarter Highlights
- Signed two new Tier 1 digital banking deals, including a $9
billion bank in the Midwest.
- Signed a digital banking contract for our retail solution with
an existing Tier 1 corporate customer, a $12 billion bank in the
Northeast.
- Signed a Tier 1 PrecisionLender contract with an $8 billion
bank in the Northeast.
- Signed a Tier 1 Cloud Lending contract with a European asset
finance company.
- Exited the first quarter with approximately 15.4 million
registered users on the Q2 platform, representing 18 percent
year-over-year and 5 percent sequential growth.
“We reported first quarter adjusted EBITDA above our
previously-issued guidance in part due to the proactive measures we
took to limit travel and marketing related spend in March as we
began to experience the impacts of COVID-19," said Jennifer Harris,
CFO of Q2. “We are being cautious as a result of the uncertainties
and risks posed by COVID-19 and are revising our full-year guidance
to reflect our current outlook on new customer bookings, as well as
the potential for project delays on new implementations in the
coming months.”
Financial Outlook
As of May 6, 2020, Q2 Holdings is providing guidance for its
second quarter of 2020 and revised guidance for its full-year 2020,
which represent Q2 Holdings’ estimates as of the date hereof of the
anticipated impacts of the COVID-19 pandemic on Q2 Holdings’
operations and financial results. The financial information below
represents forward-looking non-GAAP financial information,
including an estimate of non-GAAP revenue and adjusted EBITDA. 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,
unoccupied lease charges and the impact to deferred revenue from
purchase accounting. 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, although it is important to note that these excluded items
could be material to our results computed in accordance with GAAP
in future periods.
Q2 Holdings is providing guidance for its second quarter 2020 as
follows:
- Total Non-GAAP revenue of $94.0 million to $96.0 million, which
would represent year-over-year growth of 21 percent to 24
percent.
- Adjusted EBITDA of $3.0 million to $4.0 million.
Q2 Holdings is providing guidance for the full-year 2020 as
follows:
- Total Non-GAAP revenue of $393.0 million to $400.0 million,
which would represent year-over-year growth of 24 percent to 26
percent.
- Adjusted EBITDA of $16.0 million to $19.0 million.
Conference Call Details
Date:
May 7, 2020
Time:
8:30 a.m. EST
Hosts:
Matt Flake, CEO / Jennifer Harris, CFO
Dial in:
U.S. toll free: 1-833-979-2706
International: 1-236-714-2219
Conference ID:
9408339
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 on this
website on a temporary basis shortly after the call.
About Q2 Holdings, Inc.
Q2 is a secure, cloud-based digital transformation solutions
company headquartered in Austin, Texas. Since 2004, it has been our
mission to build stronger communities by strengthening their
financial institutions. Our digital banking solutions for deposits,
money movement, lending, leasing, security and fraud enable
financial institutions to deliver a better financial experience to
their account holders. Our bank and credit union customers, along
with emerging financial services providers, also benefit from
actionable data analytics and access to open technology tools. To
learn more about Q2, visit www.q2ebanking.com.
Use of Non-GAAP Measures
Q2 uses the following non-GAAP financial measures: non-GAAP
revenue; 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 expense; non-GAAP operating income (loss);
non-GAAP net income; non-GAAP net income per share; and pro forma
weighted-average diluted number of common shares outstanding.
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 non-GAAP revenue, Q2 adjusts revenue to exclude
the impact to deferred revenue from purchase accounting
adjustments. 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, unoccupied lease charges and the
impact to deferred revenue from purchase accounting. In the case of
non-GAAP gross margin and non-GAAP gross profit, Q2 adjusts gross
profit and gross margin for stock-based compensation amortization
of acquired technology, acquisition-related costs and the impact to
deferred revenue from purchase accounting. 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. Non-GAAP Operating Expense is calculated by taking
the sum of non-GAAP sales and marketing expense, non-GAAP research
and development expense, and non-GAAP general and administrative
expense. In the case of non-GAAP operating income (loss), non-GAAP
net income (loss), and non-GAAP net income (loss) per share, Q2
adjusts operating loss and net loss, respectively, for stock-based
compensation, acquisition related-costs, amortization of acquired
technology, amortization of acquired intangibles, unoccupied lease
charges, the impact to deferred revenue from purchase accounting,
and with respect to non-GAAP net income, amortization of debt
discount and issuance costs. In the case of pro forma diluted
weighted-average number of common shares outstanding, we adjust
diluted weighted-average number of common shares outstanding by the
weighted-average effect of potentially dilutive shares.
There are limitations associated with the use of these non-GAAP
financial measures. These non-GAAP financial measures are not
prepared in accordance with GAAP, do not reflect a comprehensive
system of accounting and may not be completely comparable to
similarly titled measures of other companies due to potential
differences in the exact method of calculation between companies.
Certain items that are excluded from these non-GAAP financial
measures can have a material impact on operating and net income
(loss). As a result, these non-GAAP financial measures have
limitations and 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 the impacts of the COVID-19 pandemic on
Q2 and its customers, and Q2’s response thereto, the transition to
digital financial solutions and Q2’s market opportunity, sales and
bookings momentum, investments in innovation and growth 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 the adverse impacts of the COVID-19 pandemic on Q2’s
business operations and on global economic and financial markets,
including on Q2’s clients, its customers, partners and suppliers
and employees and business, as well as 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, including risks related to the timing and predictability
of sales of Q2’s solutions and the impact that the timing of
bookings may have on Q2’s revenue and financial performance in a
period; (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 2020 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 Q2 solutions
internationally; and (t) the risk that Q2 debt repayment
obligations may adversely affect its financial condition and cash
flows from operations in the future and that Q2 may not be able to
obtain capital when desired or needed on favorable terms.
Additional information relating to the uncertainty affecting the
Q2 business is 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)
March 31, 2020
December 31, 2019
(unaudited)
(unaudited)
Assets
Current assets:
Cash and cash equivalents
$
83,078
$
100,094
Restricted cash
3,450
3,468
Investments
29,752
32,325
Accounts receivable, net
26,582
22,442
Contract assets, current portion, net
993
872
Prepaid expenses and other current
assets
9,315
6,354
Deferred solution and other costs, current
portion
17,256
15,609
Deferred implementation costs, current
portion
8,388
5,171
Total current assets
178,814
186,335
Property and equipment, net
48,681
39,252
Right of use assets
33,211
35,388
Deferred solution and other costs, net of
current portion
32,621
29,220
Deferred implementation costs, net of
current portion
14,586
15,848
Intangible assets, net
213,998
223,861
Goodwill
462,274
462,023
Contract assets, net of current portion
and allowance
16,988
15,189
Other long-term assets
1,325
2,318
Total assets
$
1,002,498
$
1,009,434
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued
liabilities
$
67,376
$
65,976
Deferred revenues, current portion
64,192
57,850
Lease liabilities, current portion
8,960
9,140
Total current liabilities
140,528
132,966
Convertible notes, net of current
portion
430,272
424,784
Deferred revenue, net of current
portion
33,406
32,954
Lease liabilities, net of current
portion
33,717
36,079
Other long-term liabilities
3,665
3,239
Total liabilities
641,588
630,022
Stockholders' equity:
Common stock
5
5
Additional paid-in capital
638,743
622,692
Accumulated other comprehensive income
(loss)
(163
)
14
Accumulated deficit
(277,675
)
(243,299
)
Total stockholders' equity
360,910
379,412
Total liabilities and stockholders'
equity
$
1,002,498
$
1,009,434
Q2 Holdings, Inc.
Condensed Consolidated
Statements of Comprehensive Loss
(in thousands, except per share
data)
Three Months Ended March
31,
2020
2019
(unaudited)
(unaudited)
Revenues (1)
$
92,380
$
71,296
Cost of revenues (2) (3)
53,107
37,184
Gross profit
39,273
34,112
Operating expenses:
Sales and marketing (2)
19,884
15,805
Research and development (2)
24,958
17,657
General and administrative (2)
19,110
13,860
Acquisition related costs (4)
(1,967
)
2,718
Amortization of acquired intangibles
4,491
1,215
Total operating expenses
66,476
51,255
Loss from operations
(27,203
)
(17,143
)
Other income (expense), net
(6,465
)
(2,207
)
Loss before income taxes
(33,668
)
(19,350
)
Benefit from (provision for) income
taxes
(440
)
39
Net Loss
$
(34,108
)
$
(19,311
)
Other comprehensive loss:
Unrealized gain (loss) on
available-for-sale investments
(122
)
113
Foreign currency translation
adjustment
(55
)
12
Comprehensive loss
$
(34,285
)
$
(19,186
)
Net loss per common share:
Net loss per common share, basic and
diluted
$
(0.70
)
$
(0.44
)
Weighted average common shares
outstanding, basic and diluted
48,581
43,773
(1)
Includes deferred revenue reduction from purchase accounting of
$1.4 million for the three months ended March 31, 2020.
(2)
Includes stock-based compensation expenses as follows:
Three Months Ended March
31,
2020
2019
Cost of revenues
$
3,408
$
1,548
Sales and marketing
2,754
1,806
Research and development
3,770
2,012
General and administrative
4,604
3,530
Total stock-based compensation
expenses
$
14,536
$
8,896
(3)
Includes amortization of acquired technology of $5.5 million and
$1.6 million for the three months ended March 31, 2020 and 2019,
respectively.
(4)
Includes a reduction of $3.1 million in the estimated payment of
contingent consideration based on the Company's expectations of
actual achievement.
Q2 Holdings, Inc.
Condensed Consolidated
Statements of Cash Flows
(in thousands)
Three Months Ended March
31,
2020
2019
(unaudited)
(unaudited)
Cash flows from operating activities:
Net loss
$
(34,108
)
$
(19,311
)
Adjustments to reconcile net loss to net
cash
from operating activities:
Amortization of deferred implementation,
solution and other costs
3,905
1,464
Depreciation and amortization
13,017
5,821
Amortization of debt issuance costs
459
250
Amortization of debt discount
5,031
2,298
Amortization of premiums on
investments
(49
)
(84
)
Stock-based compensation expenses
14,866
9,154
Deferred income taxes
414
133
Other non-cash charges
133
76
Changes in operating assets and
liabilities
(19,467
)
(10,687
)
Net cash used in operating activities
(15,799
)
(10,886
)
Cash flows from investing activities:
Net maturities of investments
2,500
15,204
Purchases of property and equipment
(4,642
)
(5,545
)
Capitalization of software development
costs
(287
)
—
Net cash provided by (used in) investing
activities
(2,429
)
9,659
Cash flows from financing activities:
Proceeds from exercise of stock options to
purchase common stock
1,194
3,428
Net cash provided by financing
activities
1,194
3,428
Net increase (decrease) in cash, cash
equivalents, and restricted cash
(17,034
)
2,201
Cash, cash equivalents, and restricted
cash, beginning of period
103,562
110,156
Cash, cash equivalents, and restricted
cash, end of period
$
86,528
$
112,357
Q2 Holdings, Inc.
Reconciliation of GAAP to
Non-GAAP Measures
(in thousands, except per share
data)
Three Months Ended March
31,
2020
2019
(unaudited)
(unaudited)
GAAP revenue
$
92,380
$
71,296
Deferred revenue reduction from purchase
accounting
1,442
—
Non-GAAP revenue
$
93,822
$
71,296
GAAP gross profit
$
39,273
$
34,112
Stock-based compensation
3,408
1,548
Amortization of acquired technology
5,477
1,631
Acquisition related costs
258
—
Deferred revenue reduction from purchase
accounting
1,442
—
Non-GAAP gross profit
$
49,858
$
37,291
Non-GAAP gross margin:
Non-GAAP gross profit
$
49,858
$
37,291
Non-GAAP revenue
93,822
71,296
Non-GAAP gross margin
53.1
%
52.3
%
GAAP sales and marketing expense
$
19,884
$
15,805
Stock-based compensation
(2,754
)
(1,806
)
Non-GAAP sales and marketing expense
$
17,130
$
13,999
GAAP research and development expense
$
24,958
$
17,657
Stock-based compensation
(3,770
)
(2,012
)
Non-GAAP research and development
expense
$
21,188
$
15,645
GAAP general and administrative
expense
$
19,110
$
13,860
Stock-based compensation
(4,604
)
(3,530
)
Non-GAAP general and administrative
expense
$
14,506
$
10,330
GAAP operating loss
$
(27,203
)
$
(17,143
)
Deferred revenue reduction from purchase
accounting
1,442
—
Stock-based compensation
14,536
8,896
Acquisition related costs
(1,709
)
2,718
Amortization of acquired technology
5,477
1,631
Amortization of acquired intangibles
4,491
1,215
Non-GAAP operating loss
$
(2,966
)
$
(2,683
)
GAAP net loss
$
(34,108
)
$
(19,311
)
Deferred revenue reduction from purchase
accounting
1,442
—
Stock-based compensation
14,536
8,896
Acquisition related costs
(1,709
)
2,718
Amortization of acquired technology
5,477
1,631
Amortization of acquired intangibles
4,491
1,215
Amortization of debt discount and issuance
costs
5,490
2,548
Non-GAAP net loss
$
(4,381
)
$
(2,303
)
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
48,581
43,773
Weighted-average effect of potentially
dilutive shares
—
—
Pro forma diluted weighted-average number
of common shares
48,581
43,773
Calculation of non-GAAP loss per
share:
Non-GAAP net loss
$
(4,381
)
$
(2,303
)
Pro forma diluted weighted-average number
of common shares
48,581
43,773
Non-GAAP net loss per share
$
(0.09
)
$
(0.05
)
Reconciliation of GAAP net loss to
adjusted EBITDA:
GAAP net loss
$
(34,108
)
$
(19,311
)
Depreciation and amortization
13,017
5,821
Stock-based compensation
14,536
8,896
(Benefit from) provision for income
taxes
440
(39
)
Interest (income) expense, net
6,275
2,178
Acquisition related costs
(1,709
)
2,718
Deferred revenue reduction from purchase
accounting
1,442
—
Adjusted EBITDA
$
(107
)
$
263
Q2 Holdings, Inc.
Reconciliation of GAAP to
Non-GAAP Revenue Guidance
(in thousands)
Q2 2020 Guidance
Full Year 2020
Guidance
Low
High
Low
High
GAAP Revenue
$
92,700
$
94,700
$
388,650
$
395,650
Deferred revenue reduction from purchase
accounting
1,300
1,300
4,350
4,350
Non-GAAP revenue
$
94,000
$
96,000
$
393,000
$
400,000
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200506005729/en/
MEDIA CONTACT: Beth
Williams Q2 Holdings,
Inc. O: 512.685.2023 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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