Total first quarter revenue of $71.3 million,
up 30 percent year-over-year, and up 6 percent from the previous
quarter
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, 2019.
First Quarter 2019 Results
- Revenue for the first quarter of $71.3
million, up 30 percent year-over-year and up 6 percent from the
previous quarter.
- GAAP gross margin for the first quarter
of 47.8 percent, down from 50.8 percent one year ago. Non-GAAP
gross margin for the first quarter of 52.3 percent, down from 54.3
percent one year ago. The year-over-year decline is primarily
attributable to the investment in the Cloud Lending and Gro
acquisitions closed in the fourth quarter of 2018.
- GAAP net loss for the first quarter of
$19.3 million, which compares to $6.0 million for the first quarter
of 2018, and $11.9 million for the fourth quarter of 2018. Adjusted
EBITDA for the first quarter of $0.3 million, down from $5.0
million one year ago and down from $3.1 million for the fourth
quarter of 2018 primarily as a result of the investment in the
Cloud Lending and Gro acquisitions and the timing and volume of
payroll taxes related to equity awards.
“We had a strong start to the year in the first quarter,
particularly on the sales side of the business,” said Matt Flake,
CEO of Q2. “We achieved record bookings for a first quarter,
powered by a broad mix of deals that included our newly acquired
Gro and Cloud Lending products in multiple combinations. We also
continued our sales execution on the digital banking side, with a
balanced performance across bank and credit union markets. With our
current pipeline and newly expanded product portfolio, I’m as
optimistic as ever about the opportunity ahead of us through 2019
and beyond.”
First Quarter Highlights
- Signed a digital banking contract for
our small business and corporate solutions with a $10 billion bank
in the Northeast.
- Signed a Q2 Open contract including the
Q2 digital banking platform as the front end of a direct bank
initiative at a $5 billion financial institution.
- Signed a digital lending contract
utilizing the Cloud Lending platform with a current Q2 platform
client, a $1 billion bank in Texas.
- Signed a digital onboarding contract
utilizing the Gro solution with a new $8 billion bank in the
Northeast, representing the single largest deal in Gro’s
history.
- Exited the first quarter with
approximately 13.1 million registered users on the Q2 platform,
representing 2% sequential and 19% year-over-year growth.
Financial Outlook
“We are pleased to have delivered first quarter revenue which
exceeded the high end of our guidance,” said Jennifer Harris, CFO
of Q2. “Given our strong bookings performance, we have accelerated
the investment in the continued integration of our newly acquired
businesses in order to capitalize on the opportunity they
represent. This accelerated investment, along with the timing of
payroll taxes and our annual client conference in the second
quarter, will result in margins being relatively muted in the first
half of the year with approximately 80 percent of the adjusted
EBITDA coming in the back half of the year.”
Q2 Holdings is providing guidance for its second quarter 2019 as
follows:
- Total revenue of $75.5 million to $76.5
million, which would represent year-over-year growth of 29 percent
to 31 percent.
- Adjusted EBITDA of $2.7 million to $3.3
million. GAAP net loss is the most comparable GAAP measure to
adjusted EBITDA. Adjusted EBITDA differs from GAAP net loss in that
it excludes 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 $308.8 million to
$311.8 million, which would represent year-over-year growth of 28
percent to 29 percent.
- Adjusted EBITDA of $20 million to $22
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:
May 8, 2019
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:
6699674
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 the 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,
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 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) 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; and (s) risks associated with selling our
solutions internationally.
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)
March 31, December, 31 2019 2018
(unaudited) (unaudited) Assets Current assets: Cash and cash
equivalents $ 110,542 $ 108,341 Restricted cash 1,815 1,815
Investments 53,971 68,979 Accounts receivable, net 19,549 19,668
Contract assets, current portion 654 598 Prepaid expenses and other
current assets 6,464 3,983 Deferred solution and other costs,
current portion 11,169 10,501 Deferred implementation costs,
current portion 5,011 4,427 Total
current assets 209,175 218,312 Property and equipment, net 40,715
34,994 Right of use asset 25,410 - Deferred solution and other
costs, net of current portion 22,004 16,761 Deferred implementation
costs, net of current portion 11,055 9,948 Intangible assets, net
60,254 63,296 Goodwill 107,857 107,907 Contract assets, net of
current portion 11,228 10,272 Other long-term assets 2,709
2,230 Total assets $ 490,407 $ 463,720
Liabilities and stockholders' equity Current
liabilities: Accounts payable $ 10,254 $ 9,169 Accrued liabilities
11,425 9,329 Accrued compensation 26,602 12,652 Deferred revenues,
current portion 45,246 42,531 Lease liabilities, current portion
6,898 - Total current liabilities
100,425 73,681 Convertible notes, net of current portion
185,266 182,723 Deferred revenues, net of current portion 24,202
23,063 Deferred rent, net of current portion - 8,151 Lease
liabilities, net of current portion 27,644 - Other long-term
liabilities 477 17,202 Total
liabilities 338,014 304,820 Stockholders' equity: Common
stock 4 4 Additional paid-in capital 344,033 331,355 Accumulated
other comprehensive income/(loss) 89 (37 ) Accumulated deficit
(191,733 ) (172,422 ) Total stockholders' equity
152,393 158,900 Total liabilities and
stockholders' equity $ 490,407 $ 463,720
Q2 Holdings, Inc. Condensed Consolidated
Statements of Comprehensive Loss (in thousands, except per
share data)
Three Months
Ended March 31, 2019 2018 (unaudited) (unaudited)
Revenues $ 71,296 $ 54,808 Cost of revenues (1) (2)
37,184 26,977 Gross profit 34,112 27,831
Operating expenses: Sales and marketing (1) 15,805 10,966
Research and development (1) 17,657 11,157 General and
administrative (1) 13,860 10,296 Acquisition related costs 2,718
256 Amortization of acquired intangibles 1,215
368 Total operating expenses 51,255
33,043 Loss from operations (17,143 ) (5,212 ) Other income
(expense), net (2,207 ) (1,023 ) Loss before income
taxes (19,350 ) (6,235 ) Benefit from income taxes 39
187 Net loss $ (19,311 ) $ (6,048 ) Other
comprehensive loss: Unrealized gain (loss) on available-for-sale
investments 113 (24 ) Foreign currency translation adjustment
12 - Comprehensive loss $ (19,186 ) $
(6,072 ) Net loss per common share: Net loss per common share,
basic and diluted $ (0.44 ) $ (0.14 ) Weighted average common
shares outstanding, basic and diluted 43,773
42,170
(1) Includes stock-based compensation
expenses as follows:
Three Months Ended March 31, 2019 2018 Cost of
revenues $ 1,548 $ 1,015 Sales and marketing 1,806 1,226 Research
and development 2,012 1,356 General and administrative 3,530
2,498 Total stock-based compensation expenses
$ 8,896 $ 6,095 (2) Includes amortization of
acquired technology of $1.6 million and $0.9 million for the three
months ended March 31, 2019 and 2018, respectively
Q2 Holdings, Inc. Condensed
Consolidated Statements of Cash Flows (in thousands)
Three Months Ended March 31, 2019 2018
(unaudited) (unaudited)
Cash flows from operating
activities: Net loss $ (19,311 ) $ (6,048 ) Adjustments to
reconcile net loss to net cash used in operating activities:
Amortization of deferred implementation, solution and other costs
1,464 2,218 Depreciation and amortization 5,821 3,878 Amortization
of debt issuance costs 250 123 Amortization of debt discount 2,298
1,099 Amortization of premiums on investments (84 ) 56 Stock-based
compensation expenses 9,154 6,095 Deferred income taxes 133 36
Other non-cash charges 76 22 Changes in operating assets and
liabilities (10,687 ) (14,582 ) Cash used in
operating activities (10,886 ) (7,103 )
Cash flows from
investing activities: Net redemptions of investments 15,204
2,901 Purchases of property and equipment (5,545 ) (5,396 )
Business combinations and asset acquisitions, net of cash acquired
- (150 ) Cash provided by (used in) investing
activities 9,659 (2,645 )
Cash flows from financing
activities: Proceeds from issuance of convertible notes, net of
issuance costs - 223,675 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 3,428
2,843 Net cash provided by financing
activities 3,428 207,198 Net increase
in cash, cash equivalents, and restricted cash 2,201 197,450 Cash,
cash equivalents, and restricted cash, beginning of period
110,156 60,276 Cash, cash equivalents, and
restricted cash, end of period $ 112,357 $ 257,726
Q2 Holdings, Inc. Reconciliation of GAAP to
Non-GAAP Measures (in thousands, except per share data)
Three Months Ended March 31,
2019 2018 (unaudited) (unaudited) GAAP gross profit $
34,112 $ 27,831 Stock-based compensation 1,548 1,015 Amortization
of acquired technology 1,631 912
Non-GAAP gross profit $ 37,291 $ 29,758
Non-GAAP gross margin: Non-GAAP gross profit $ 37,291 $ 29,758 GAAP
revenue 71,296 54,808 Non-GAAP gross
margin 52.3 % 54.3 % GAAP sales and marketing
expense $ 15,805 $ 10,966 Stock-based compensation (1,806 )
(1,226 ) Non-GAAP sales and marketing expense $ 13,999
$ 9,740 GAAP research and development expense
$ 17,657 $ 11,157 Stock-based compensation (2,012 )
(1,356 ) Non-GAAP research and development expense $ 15,645
$ 9,801 GAAP general and administrative expense $
13,860 $ 10,296 Stock-based compensation (3,530 )
(2,498 ) Non-GAAP general and administrative expense $ 10,330
$ 7,798 GAAP operating loss $ (17,143 ) $
(5,212 ) Stock-based compensation 8,896 6,095 Acquisition related
costs 2,718 256 Amortization of acquired technology 1,631 912
Amortization of acquired intangibles 1,215 368
Non-GAAP operating income (loss) $ (2,683 ) $ 2,419
GAAP net loss $ (19,311 ) $ (6,048 ) Stock-based
compensation 8,896 6,095 Acquisition related costs 2,718 256
Amortization of acquired technology 1,631 912 Amortization of
acquired intangibles 1,215 368 Amortization of debt discount and
issuance costs 2,548 1,222 Non-GAAP net
income (loss) $ (2,303 ) $ 2,805 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 43,773 42,170
Weighted-average effect of potentially dilutive shares -
1,970 Pro forma diluted weighted-average
number of common shares 43,773 44,140 Calculation of
non-GAAP income (loss) per share: Non-GAAP net income (loss) $
(2,303 ) $ 2,805 Diluted weighted-average number of common shares
(pro forma for 43,773 44,140 three months ended March 31, 2018)
Non-GAAP net income (loss) per share $ (0.05 ) $ 0.06
Reconciliation of GAAP net loss to adjusted EBITDA:
GAAP net loss $ (19,311 ) $ (6,048 ) Depreciation and amortization
5,821 3,878 Stock-based compensation 8,896 6,095 Benefit from
income taxes (39 ) (187 ) Interest (income) expense, net 2,178
1,023 Acquisition related costs 2,718 256
Adjusted EBITDA $ 263 $ 5,017
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version on businesswire.com: https://www.businesswire.com/news/home/20190507006071/en/
MEDIA CONTACT:Emma ChaseRed Fan CommunicationsO: (512)
551-9253 / C: (512) 917-4319emma@redfancommunications.com
INVESTOR CONTACT:Josh YankovichQ2 Holdings, Inc.O: (512)
682-4463josh.yankovich@q2ebanking.com
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