QTWO Q2 Holdings Inc

Total third quarter revenue of $38.3 million, up 37 percent year-over-year

Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of secure, cloud-based virtual banking solutions for community-focused financial institutions, today announced results for its third quarter ending Sept. 30, 2016.

Third Quarter Results

• Revenue for the third quarter of $38.3 million, up 37 percent year-over-year and up 6 percent sequentially.
• GAAP gross margin for the third quarter of 48.8 percent, up from 46.0 percent one year ago. Non-GAAP gross margin for the third quarter of 52.3 percent, up from 47.7 percent one year ago.
• GAAP net loss for the third quarter of $9.5 million, which compares to a GAAP net loss of $7.0 million a year ago. Adjusted EBITDA for the third quarter of negative $1.1 million, which compares to negative $2.2 million one year ago.

“I was encouraged by the performance of the business in the third quarter,“ said Matt Flake, CEO. “We saw improved execution on our sales pipeline and successfully deployed our first corporate banking customer. I look to build on our performance in the fourth quarter and close out the year on a high note.”

Third Quarter 2016 Highlights

• Implemented and went live with our corporate banking platform at a $20 billion bank in the western United States.
• Continued to build on our momentum in the Credit Union market as we signed two additional CUs with over $1 billion in assets in the quarter.
• Exited the third quarter with approximately 7.8 million registered users on the Q2 platform, representing 30 percent year-over-year growth and up 2 percent from the previous quarter.

Financial Outlook

Q2 Holdings is providing guidance for its fourth quarter 2016 as follows:

• Total revenue of $41.0 million to $41.6 million, which would represent year-over-year growth of 35 percent to 37 percent.
• Adjusted EBITDA of positive $0.9 million to positive $1.3 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, income taxes and unoccupied lease charges. QTWO is unable to predict with reasonable certainty the ultimate outcome of these exclusions without unreasonable effort. Therefore, QTWO 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 updated guidance for the full-year 2016 as follows:

• Total revenue of $149.1 million to $149.7 million, which would represent year-over-year growth of 37 percent to 38 percent.
• Adjusted EBITDA of negative $4.5 million to negative $4.9 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, income taxes and unoccupied lease charges. QTWO is unable to predict with reasonable certainty the ultimate outcome of these exclusions without unreasonable effort. Therefore, QTWO 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. 3, 2016

Time:

8:30 a.m. EDT

Hosts:

Matt Flake, CEO / Jennifer Harris, CFO

Dial in:

US toll free: 1-877-201-0168

 

International: 1-647-788-4902

Conference ID:

99537881  

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 encouraging business performance, improvement in execution of Q2’s sales pipeline, momentum in sales to credit unions 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 that Q2 will face 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 challenges and costs associated with selling, implementing and supporting Q2’s solutions, particularly for larger customers with more complex requirements and longer implementation processes; (e) errors, interruptions or delays in Q2’s service or Web hosting; (f) risks associated with data breaches and breaches of security measures within Q2’s products, systems and infrastructure; (g) technological and regulatory developments; (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 desired by customers and governmental authorities; (j) the difficulties and costs Q2 may encounter with complex implementations of its solutions and the resulting impact on the timing of its revenue from any delayed implementations; (k) the risk that Q2 will not be able to maintain historical contract terms such as pricing and duration; (l) the risks associated with managing growth and the challenges associated with improving operations and hiring, retaining and motivating employees to support such growth; (m) 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; (n) the risk that Q2’s security measures are compromised or of unauthorized access to customer data; (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 risk that the challenges faced by our customers impacts their ability to enter into or maintain their agreements with Q2.

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,   2016     2015   (unaudited) Assets Current assets: Cash and cash equivalents $ 51,623 $ 67,049 Restricted cash 2,159 2,123 Investments 40,708 43,571 Accounts receivable, net 16,246 9,009 Prepaid expenses and other current assets 5,335 3,058 Deferred solution and other costs, current portion 8,304 5,968 Deferred implementation costs, current portion   3,038     2,440   Total current assets 127,413 133,218 Property and equipment, net 28,994 24,440 Deferred solution and other costs, net of current portion 12,106 10,146 Deferred implementation costs, net of current portion 7,622 6,045 Intangible assets, net 15,631 17,192 Goodwill 12,876 12,876 Other long-term assets   642     551   Total assets $ 205,284   $ 204,468     Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued liabilities $ 28,188 $ 22,481 Deferred revenues, current portion 32,290 23,051 Capital lease obligations, current portion   -     161   Total current liabilities 60,478 45,693 Deferred revenues, net of current portion 32,266 29,188 Deferred rent, net of current portion 9,750 7,359 Other long-term liabilities   292     4,254   Total liabilities 102,786 86,494 Stockholders' equity: Common stock 4 4 Treasury stock (264 ) (41 ) Additional paid-in capital 221,041 207,541 Accumulated other comprehensive loss (13 ) (101 ) Accumulated deficit   (118,270 )   (89,429 ) Total stockholders' equity   102,498     117,974   Total liabilities and stockholders' equity $ 205,284   $ 204,468     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,   2016     2015     2016     2015   (unaudited) (unaudited) (unaudited) (unaudited)   Revenues $ 38,305 $ 28,018 $ 108,069 $ 78,459 Cost of revenues (1) (2)   19,599     15,135     56,283     42,545   Gross profit 18,706 12,883 51,786 35,914   Operating expenses: Sales and marketing (1) 8,980 6,660 26,798 19,841 Research and development (1) 8,219 5,979 23,952 14,927 General and administrative (1) 8,624 5,961 23,482 16,430 Acquisition related costs 1,835 1,006 4,793 1,006 Amortization of acquired intangibles 368 227 1,104 227 Unoccupied lease charges   -     -     33     -   Total operating expenses   28,026     19,833     80,162     52,431   Loss from operations (9,320 ) (6,950 ) (28,376 ) (16,517 ) Other income (expense), net   (64 )   13     (135 )   (3 ) Loss before income taxes (9,384 ) (6,937 ) (28,511 ) (16,520 ) Provision for income taxes   (97 )   (79 )   (330 )   (123 ) Net loss $ (9,481 ) $ (7,016 ) $ (28,841 ) $ (16,643 ) Other comprehensive loss Unrealized (loss) gain on available-for-sale investments   (17 )   25     88     (11 ) Comprehensive loss $ (9,498 ) $ (6,991 ) $ (28,753 ) $ (16,654 ) Net loss per common share: Net loss per common share, basic and diluted $ (0.24 ) $ (0.19 ) $ (0.73 ) $ (0.45 ) Weighted average common shares outstanding, basic and diluted   39,870     37,438     39,445     36,774      

(1) Includes stock-based compensation expenses as follows:

Three Months Ended September 30, Nine Months Ended September 30,   2016     2015     2016     2015   Cost of revenues $ 547 $ 290 $ 1,408 $ 706 Sales and marketing 587 399 1,514 1,035 Research and development 766 302 2,050 681 General and administrative   1,459     920     3,849     2,450   Total stock-based compensation expenses $ 3,359   $ 1,911   $ 8,821   $ 4,872     (2) Includes amortization of acquired technology of $0.8 million and $0.2 million for the three months ended September 30, 2016 and 2015, respectively, and $2.4 million and $0.2 million for the nine months ended September 30, 2016 and 2015, respectively.   Q2 Holdings, Inc. Condensed Consolidated Statements of Cash Flows (in thousands)     Nine Months Ended September 30,   2016     2015   (unaudited) (unaudited) Cash flows from operating activities: Net loss $ (28,841 ) $ (16,643 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Amortization of deferred implementation, solution and other costs 4,928 3,750 Depreciation and amortization 8,935 4,429 Amortization of debt issuance costs 72 72 Amortization of premiums on investments 324 225 Stock-based compensation expenses 8,821 4,872 Deferred income taxes 208 - Other non-cash charges 164 37 Changes in operating assets and liabilities   4,000     3,636   Cash (used in) provided by operating activities (1,389 ) 378 Cash flows from investing activities: Net redemptions (purchases) of investments 2,626 (24,000 ) Purchases of property and equipment (13,553 ) (3,570 ) Business combinations, net of cash acquired (95 ) (18,583 ) Capitalization of software development costs (1,932 ) - Purchases of other intangible assets (263 ) - Increase in restricted cash   -     (486 ) Cash used in investing activities (13,217 ) (46,639 ) Cash flows from financing activities: Payments on financing obligations and capital leases, net (5,051 ) (3,197 ) Proceeds from issuance of common stock   4,231     56,648   Net cash (used in) provided by financing activities   (820 )   53,451   Net (decrease) increase in cash and cash equivalents (15,426 ) 7,190 Cash and cash equivalents, beginning of period   67,049     67,979   Cash and cash equivalents, end of period $ 51,623   $ 75,169           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,   2016     2015   2016     2015   (unaudited) (unaudited) (unaudited) (unaudited) GAAP gross profit $ 18,706 $ 12,883 $ 51,786 $ 35,914 Stock-based compensation 547 290 1,408 706 Amortization of acquired technology   798     197   2,393     197   Non-GAAP gross profit $ 20,051   $ 13,370 $ 55,587   $ 36,817     Non-GAAP gross margin: Non-GAAP gross profit $ 20,051 $ 13,370 $ 55,587 $ 36,817 GAAP revenue   38,305     28,018   108,069     78,459   Non-GAAP gross margin   52.3 %   47.7 %   51.4 %   46.9 %   GAAP sales and marketing expense $ 8,980 $ 6,660 $ 26,798 $ 19,841 Stock-based compensation   (587 )   (399 )   (1,514 )   (1,035 ) Non-GAAP sales and marketing expense $ 8,393   $ 6,261 $ 25,284   $ 18,806     GAAP research and development expense $ 8,219 $ 5,979 $ 23,952 $ 14,927 Stock-based compensation   (766 )   (302 )   (2,050 )   (681 ) Non-GAAP research and development expense $ 7,453   $ 5,677 $ 21,902   $ 14,246     GAAP general and administrative expense $ 8,624 $ 5,961 $ 23,482 $ 16,430 Stock-based compensation   (1,459 )   (920 )   (3,849 )   (2,450 ) Non-GAAP general and administrative expense $ 7,165   $ 5,041 $ 19,633   $ 13,980     GAAP operating loss $ (9,320 ) $ (6,950 ) $ (28,376 ) $ (16,517 ) Stock-based compensation 3,359 1,911 8,821 4,872 Acquisition related costs 1,835 1,006 4,793 1,006 Amortization of acquired technology 798 197 2,393 197 Amortization of acquired intangibles 368 227 1,104 227 Unoccupied lease charges   -     -   33     -   Non-GAAP operating loss $ (2,960 ) $ (3,609 ) $ (11,232 ) $ (10,215 )   GAAP net loss $ (9,481 ) $ (7,016 ) $ (28,841 ) $ (16,643 ) Stock-based compensation 3,359 1,911 8,821 4,872 Acquisition related costs 1,835 1,006 4,793 1,006 Amortization of acquired technology 798 197 2,393 197 Amortization of acquired intangibles 368 227 1,104 227 Unoccupied lease charges   -     -   33     -   Non-GAAP net loss $ (3,121 ) $ (3,675 ) $ (11,697 ) $ (10,341 )   Reconciliation of GAAP net loss to adjusted EBITDA: GAAP net loss $ (9,481 ) $ (7,016 ) $ (28,841 ) $ (16,643 ) Depreciation and amortization 3,064 1,873 8,935 4,429 Stock-based compensation 3,359 1,911 8,821 4,872 Provision for income taxes 97 79 330 123 Interest (income) expense, net 64 (13 ) 135 3

Acquisition related costs

1,835 1,006 4,793 1,006 Unoccupied lease charges   -     -   33     -   Adjusted EBITDA $ (1,062 ) $ (2,160 ) $ (5,794 ) $ (6,210 )

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Media Contact:Red Fan CommunicationsKathleen Lucente, 512-551-9253C: 512-217-6352kathleen@redfancommunications.comorInvestor Contact:Q2 Holdings, Inc.Bob Gujavarty, 512-439-3447bobby.gujavarty@q2ebanking.com