Total second quarter revenue of $58.6 million,
up 23 percent year-over-year, and up 7 percent from the previous
quarter
Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of secure,
experience-driven digital banking solutions, today announced
results for its second quarter ending June 30, 2018.
Second Quarter 2018 Results
- Revenue for the second quarter of $58.6
million, up 23 percent year-over-year and up 7 percent from the
previous quarter.
- GAAP gross margin for the second
quarter of 50.0 percent, up from 48.9 percent one year ago.
Non-GAAP gross margin for the first quarter of 53.3 percent, up
from 52.6 percent one year ago.
- GAAP net loss for the second quarter of
$8.6 million, which compares to a GAAP net loss of $7.8 million for
the second quarter of 2017, and $6.0 million for the first quarter
of 2018. Adjusted EBITDA for the second quarter of positive $5.1
million, an improvement from positive $1.4 million one year ago and
positive $5.0 million for the first quarter of 2018.
“The second quarter was defined by broad-based strength across
multiple products and end markets,” said Matt Flake, CEO of Q2. “On
the product side, our corporate banking, Q2 Open and Centrix
products contributed to another quarter of solid bookings. Looking
at our end market, I would call out the strong contributions from
banks outside the Tier-1 space. Year to date, our bookings from
this market now exceed our total bookings from these same customers
in 2017.”
Second Quarter 2018 Highlights.
- Signed a Top 50 credit union with $6
billion in assets as a corporate banking customer, one of six net
new corporate banking wins in the quarter.
- Exited the second quarter with more
than 11.4 million registered users on the Q2 platform, representing
19 percent year-over-year growth and up 5 percent
sequentially.
- Q2 Open momentum continues, signing six
net new deals in the quarter representing a wide variety of
fintechs.
Financial Outlook
Q2 Holdings is providing guidance for its third quarter 2018 as
follows:
- Total revenue of $59.7 million to $60.3
million, which would represent year-over-year growth of 19 percent
to 20 percent.
- Adjusted EBITDA of $5.0 million to $5.4
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 2018 as
follows:
- Total revenue of $238.0 million to
$239.2 million, which would represent year-over-year growth of
approximately 23 percent.
- Adjusted EBITDA of $22.1 million to
$23.5 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: Aug. 8, 2018
Time: 8:30 a.m. EDT
Hosts: Matt Flake, CEO / Jennifer Harris, CFO
Dial
in: US toll free: 1-833-241-4254 International: 1-647-689-4205
Conference ID: 7291019
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 is a leading provider of secure, experience-driven digital
banking solutions headquartered in Austin, Texas. We are
driven by a mission to build stronger communities by strengthening
their financial institutions. Q2 provides the industry’s
most comprehensive digital banking platform, enriched through
actionable data insights, open development tools and an evolving
fintech ecosystem. We help clients elevate the experience,
drive efficiency and grow faster. 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, product strength and
bookings momentum and Q2’s performance in 2018, 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, in particular with respect
to Tier 1 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 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)
June 30,
December 31, 2018 2017
(unaudited) (unaudited) Assets Current assets: Cash and cash
equivalents $ 176,738 $ 57,961 Restricted cash 2,315 2,315
Investments 101,974 41,685 Accounts receivable, net 26,996 13,203
Contract assets, current portion 1,196 - Prepaid expenses and other
current assets 4,691 3,115 Deferred solution and other costs,
current portion 10,402 9,246 Deferred implementation costs, current
portion 3,066 3,562 Total current
assets 327,378 131,087 Property and equipment, net 36,727 34,544
Deferred solution and other costs, net of current portion 15,966
12,973 Deferred implementation costs, net of current portion 9,492
8,295 Intangible assets, net 9,079 12,034 Goodwill 12,876 12,876
Contract assets, net of current portion 6,074 - Other long-term
assets 1,171 1,006 Total assets $
418,763 $ 212,815 Liabilities and
stockholders' equity Current liabilities: Accounts payable and
accrued liabilities $ 21,427 $ 29,694 Deferred revenues, current
portion 33,159 38,379 Total current
liabilities 54,586 68,073 Convertible notes, net of current portion
177,562 - Deferred revenues, net of current portion 19,238 28,289
Deferred rent, net of current portion 8,248 9,393 Other long-term
liabilities 823 438 Total liabilities
260,457 106,193 Stockholders' equity: Common stock 4 4 Treasury
stock - (855 ) Additional paid-in capital 310,163 259,726
Accumulated other comprehensive loss (161 ) (139 ) Accumulated
deficit (151,700 ) (152,114 ) Total stockholders'
equity 158,306 106,622 Total
liabilities and stockholders' equity $ 418,763 $ 212,815
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, 2018
2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues $ 58,574 $ 47,625 $ 113,382 $ 92,159 Cost of revenues (1)
(2) 29,303 24,328 56,280
47,100 Gross profit 29,271 23,297 57,102 45,059
Operating expenses: Sales and marketing (1) 12,108 11,096
23,074 20,974 Research and development (1) 11,756 9,922 22,913
19,573 General and administrative (1) 10,798 9,268 21,094 17,720
Acquisition related costs 258 351 514 699 Amortization of acquired
intangibles 368 373 736 744 Unoccupied lease charges (3) 658
- 658 - Total
operating expenses 35,946 31,010
68,989 59,710 Loss from operations (6,675 )
(7,713 ) (11,887 ) (14,651 ) Other income (expense), net
(2,105 ) 109 (3,128 ) 143 Loss
before income taxes (8,780 ) (7,604 ) (15,015 ) (14,508 ) Benefit
from (provision for) income taxes 153 (217 )
340 (353 ) Net loss $ (8,627 ) $ (7,821 ) $
(14,675 ) $ (14,861 ) Other comprehensive income (loss): Unrealized
gain (loss) on available-for-sale investments 2
(29 ) (22 ) (30 ) Comprehensive loss $ (8,625
) $ (7,850 ) $ (14,697 ) $ (14,891 ) Net loss per common share: Net
loss per common share, basic and diluted $ (0.20 ) $ (0.19 ) $
(0.35 ) $ (0.36 ) Weighted average common shares outstanding, basic
and diluted 42,605 41,064 42,389
40,848
(1)
Includes stock-based compensation expenses as follows:
Three
Months Ended June 30, Six Months Ended June 30,
2018 2017 2018
2017 Cost of revenues $ 1,065 $ 819 $
2,080 $ 1,543 Sales and marketing 1,428 812 2,654 1,443 Research
and development 1,566 1,033 2,922 1,978 General and administrative
2,945 2,358 5,443
4,255 Total stock-based compensation expenses $ 7,004
$ 5,022 $ 13,099 $ 9,219 (2) Includes
amortization of acquired technology of $0.9 million for each of the
three months ended June 30, 2018 and 2017 and $1.8 million for each
of the six months ended June 30, 2018 and 2017. (3)
Unoccupied lease charges include costs related to the early exit
from of 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,
2018 2017 (unaudited)
(unaudited) Cash flows from operating activities: Net loss $
(14,675 ) $ (14,861 ) Adjustments to reconcile net loss to net cash
used in operating activities: Amortization of deferred
implementation, solution and other costs 4,265 3,514 Depreciation
and amortization 7,752 7,227 Amortization of debt issuance costs
346 28 Amortization of debt discount 3,089 - Amortization of
premiums on investments 21 151 Stock-based compensation expenses
13,099 9,219 Deferred income taxes (61 ) 234 Other non-cash charges
696 38 Changes in operating assets and liabilities (35,816 )
(15,810 ) Cash used in operating activities (21,284 )
(10,260 ) Cash flows from investing activities: Net redemptions of
investments (60,331 ) (2,119 ) Purchases of property and equipment
(11,154 ) (7,625 ) Business combinations and asset acquisitions,
net of cash acquired (150 ) (3,816 ) Capitalization of software
development costs - (762 ) Increase in restricted cash -
(1,600 ) Cash used in investing activities (71,635 )
(15,922 ) Cash flows from financing activities: Proceeds from
issuance of convertible notes, net of issuance costs 223,185 -
Purchase of convertible notes bond hedge (41,699 ) - Proceeds from
issuance of warrants 22,379 - Proceeds from issuance of common
stock 7,831 5,780 Net cash provided by
financing activities 211,696 5,780 Net
increase (decrease) in cash, cash equivalents, and restricted cash
118,777 (20,402 ) Cash, cash equivalents, and restricted cash,
beginning of period 60,276 57,788 Cash,
cash equivalents, and restricted cash, end of period $ 179,053
$ 37,386 Reconciliation of cash, cash
equivalents, and restricted cash as shown in the statements of cash
flows: Cash and cash equivalents $ 176,738 $ 34,471 Restricted cash
2,315 2,915 Total cash, cash
equivalents, and restricted cash $ 179,053 $ 37,386
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, 2018
2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited) GAAP gross
profit $ 29,271 $ 23,297 $ 57,102 $ 45,059 Stock-based compensation
1,065 819 2,080 1,543 Amortization of acquired technology
912 912 1,822 1,798
Non-GAAP gross profit $ 31,248 $ 25,028 $
61,004 $ 48,400 Non-GAAP gross margin:
Non-GAAP gross profit $ 31,248 $ 25,028 $ 61,004 $ 48,400 GAAP
revenue 58,574 47,625 113,382
92,159 Non-GAAP gross margin 53.3 %
52.6 % 53.8 % 52.5 % GAAP sales and
marketing expense $ 12,108 $ 11,096 $ 23,074 $ 20,974 Stock-based
compensation (1,428 ) (812 ) (2,654 )
(1,443 ) Non-GAAP sales and marketing expense $ 10,680 $
10,284 $ 20,420 $ 19,531 GAAP research
and development expense $ 11,756 $ 9,922 $ 22,913 $ 19,573
Stock-based compensation (1,566 ) (1,033 )
(2,922 ) (1,978 ) Non-GAAP research and development expense
$ 10,190 $ 8,889 $ 19,991 $ 17,595
GAAP general and administrative expense $ 10,798 $ 9,268 $
21,094 $ 17,720 Stock-based compensation (2,945 )
(2,358 ) (5,443 ) (4,255 ) Non-GAAP general and
administrative expense $ 7,853 $ 6,910 $ 15,651
$ 13,465 GAAP operating loss $ (6,675 ) $
(7,713 ) $ (11,887 ) $ (14,651 ) Stock-based compensation 7,004
5,022 13,099 9,219 Acquisition related costs 258 351 514 699
Amortization of acquired technology 912 912 1,822 1,798
Amortization of acquired intangibles 368 373 736 744 Unoccupied
lease charges 658 - 658
- Non-GAAP operating income (loss) $ 2,525 $
(1,055 ) $ 4,942 $ (2,191 ) GAAP net loss $ (8,627 )
$ (7,821 ) $ (14,675 ) $ (14,861 ) Stock-based compensation 7,004
5,022 13,099 9,219 Acquisition related costs 258 351 514 699
Amortization of acquired technology 912 912 1,822 1,798
Amortization of acquired intangibles 368 373 736 744 Unoccupied
lease charges 658 - 658
- Non-GAAP net income (loss) $ 573 $ (1,163 )
$ 2,154 $ (2,401 ) 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 42,605 41,064
42,389 40,848 Weighted-average effect of potentially dilutive
shares 2,389 - 2,200
- Pro forma diluted weighted-average number of common
shares 44,994 41,064 44,589 40,848 Calculation of non-GAAP
income (loss) per share: Non-GAAP net income (loss) $ 573 $ (1,163
) $ 2,154 $ (2,401 )
Diluted weighted-average number of common
shares (pro forma for
three and six months ended June 30, 2018) 44,994
41,064 44,589 40,848
Non-GAAP net income (loss) per share $ 0.01 $ (0.03 ) $ 0.05
$ (0.06 ) Reconciliation of GAAP net loss to adjusted
EBITDA: GAAP net loss $ (8,627 ) $ (7,821 ) $ (14,675 ) $ (14,861 )
Depreciation and amortization 3,874 3,702 7,752 7,227 Stock-based
compensation 7,004 5,022 13,099 9,219 (Benefit from) provision for
income taxes (153 ) 217 (340 ) 353 Interest (income) expense, net
2,105 (109 ) 3,128 (143 ) Acquisition related costs 258 351 514 699
Unoccupied lease charges 658 -
658 - Adjusted EBITDA $ 5,119 $ 1,362
$ 10,136 $ 2,494
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180807005624/en/
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
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