Q2 to provide long-term targets of
approximately $1.2 billion in non-GAAP revenue and 20% Adjusted
EBITDA Margins by 2026
Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of digital
banking and lending solutions, will host its Investor Day today at
9:00 a.m. EST. The event will feature presentations from members of
Q2’s executive team focused on the evolution of financial services,
why Q2 believes it is well positioned to help lead this
transformation, and how that translates into a compelling long-term
growth and margin expansion opportunity for the company.
Q2 has identified three market forces converging to shape the
future of the financial services industry: the increasing urgency
to digitize the entire bank; the growing market share and influence
of fintechs in financial services; and the movement of innovative
brands to embed financial services into the daily lives of their
consumer and business customers.
Q2’s strategic assets position the company to capitalize on this
convergence, including: a broad and deep portfolio of digital
banking, lending, and data solutions; an open technology platform
that accelerates innovation and enables a new partnership
ecosystem; and a complete Banking-as-a-Service solution that
enables innovative companies to embed finance directly into their
products.
“A New Frontier has emerged, one in which financial
institutions, fintechs, and brands require new technology,
partnerships, and business models to create differentiation and
lasting value,” said Matt Flake, CEO. “As a result, we see our
market opportunity expanding rapidly. We’re executing on our core
business, delivering innovation at scale, and believe that we have
built a substantial head start enabling new partnerships with
fintechs and brands, positioning us for continued leadership across
financial services.”
In today’s Investor Day presentation, Q2’s executive team will
explain why Q2 believes this leadership position creates an
opportunity for substantial, long-term revenue growth accompanied
by expanding margins and will provide Q2’s long-term targets of
approximately $1.2 billion in annual total non-GAAP revenue,
approximately 60% gross margins, and approximately 20% adjusted
EBITDA margins by 2026.
Investors are invited to register for the event here.
A live webcast of the event will be accessible from the investor
relations section of Q2’s website at http://investors.Q2.com/. The
event will conclude with a live Q&A session in which
participants can submit questions once they have registered for the
event. For those unable to join the live webcast, a replay will be
available on Q2’s investor relations website shortly after the
event.
Today’s event also will address how Q2 is:
Leading the Industry from Digital Banking
to “The Digital Bank”
- Financial institutions face unprecedented pressure to adopt new
technology across their organizations to engage and retain
customers, drive growth, and realize operating efficiencies.
- Q2’s end-to-end solution portfolio enables comprehensive
digitization, spanning onboarding, banking, and lending; across
retail, small business, and commercial segments; and supporting
critical digital banking activity at scale, including for 2021
approximately:
- 4 billion logins;1
- 13 billion minutes of engagement; 1
- $2.5 trillion in money moved; 1 and
- $4 trillion in commercial loans priced.2
- This portfolio enables Q2 to win with customers across the
markets it serves, including:
- More than 1,200 financial institution customers;3
- More than 150 “Tier 1” financial institution customers across
all of Q2’s solutions;4 and
- Approximately 35% of the top 100 U.S. banks.5
Building an Ecosystem to Enable Bank,
Fintech, and Brand Partnerships
- As fintechs continue to raise record funding and drive
innovation in financial services, opportunities for mutually
beneficial partnerships with financial institutions are
emerging.
- To capture this opportunity, Q2 has opened its digital banking
platform via the Q2 Innovation Studio, enabling fast, easy fintech
integration into the complex financial services technology
ecosystem, creating new partnerships and accelerating innovation,
including by:
- Expanding the number of developers to a universe of more than
800 developers across Q2’s internal teams and third-party partners,
customers, and development firms;
- Giving customers access to more than 50 technology partners
with integrated offerings ready for near-immediate deployment
through Q2 Innovation Studio; and
- Being able to reduce the time and cost required to deploy new
third-party solutions by more than 50%6, compared to the
traditional development model.
- Q2 also has built an integrated suite of offerings designed to
facilitate innovative brands that are launching strategies to add
banking to their products. Q2’s Banking-as-a-Service, or BaaS,
solution provides both the modern technology and support to
financial institution partners necessary to enable this model,
giving Q2 a leadership position in this early, but rapidly growing
space, with:
- More than 10 million end users supported on the Q2 BaaS
platform;7 and
- More than 1 billion monthly API calls generated by Q2 BaaS
customers.8
Executing to Capture an Expanding Market
Opportunity with a Strong Financial Model
- Q2 believes it is positioned at the center of these market
forces, giving it a large and expanding market opportunity that it
estimates will grow from $13 billion to approximately $23 billion
by 2026.9
- Q2’s long-term contracts, deep customer engagement, and
continuous innovation have contributed to a strong financial model,
with:
- A 66-month average digital banking platform contract
length;10
- 43% average contracted recurring revenue growth at 36 months of
implementation;11 and
- A 119% average net revenue retention rate since 2018.12
- Q2 is seeing its new opportunities grow in size, supported by
an expanding solution portfolio and highlighted by comparing net
new digital banking customer deals signed through the first 9
months of 2021 to deals signed in 2017, which show:
- An average sales price that is 1.8 times larger;
- A 43% increase in the number of products included in net new
deals; and
- A 76% increase in the median customer asset size associated
with those net new deals.
- Q2 also believes that its Q2 Innovation Studio and BaaS
solutions open additional opportunities to drive high,
margin-accretive revenue growth in the future, with:
- Q2 Innovation Studio creating new, usage-driven revenue streams
for Q2 and its customers, incremental to contracted recurring
revenue and giving Q2 access to new market verticals with
substantial growth opportunities, such as credit monitoring and
business-to-business payments; and
- BaaS having a model built for revenue growth driven by usage
and adoption, with some customer engagements providing revenue over
10 times larger13 than the initial booking value, and representing
a long-term revenue opportunity of more than $100 million in annual
non-GAAP revenue by 2026.
- Q2’s targets for 2026 include approximately:14
- $1.2 billion in annual total non-GAAP revenue;
- 60% gross margins; and
- 20% adjusted EBITDA margins.
About Q2 Holdings, Inc.
Q2 is a financial experience company dedicated to providing
digital banking and lending solutions to banks, credit unions,
alternative finance, and fintech companies in the U.S. and
internationally. With comprehensive end-to-end solution sets, Q2
enables its partners to provide cohesive, secure, data-driven
experiences to every account holder – from consumer to small
business and corporate. Headquartered in Austin, Texas, Q2 has
offices throughout the world and is publicly traded on the NYSE
under the stock symbol QTWO. To learn more, please visit
Q2.com.
Use of Non-GAAP Measures
Q2 uses the following non-GAAP financial measures in this press
release or in the investor day presentation: non-GAAP revenue;
adjusted EBITDA; non-GAAP gross margin; non-GAAP sales and
marketing expense; and non-GAAP general and administrative expense.
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, unoccupied
lease charges, partnership termination charges, loss on
extinguishment of debt, and the impact to deferred revenue from
purchase accounting. In the case of non-GAAP gross margin, Q2
adjusts 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 and non-GAAP general and administrative
expense, Q2 adjusts the corresponding GAAP expense to exclude
stock-based compensation.
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.
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 its board of directors concerning Q2’s financial
performance.
A reconciliation of forward-looking non-GAAP financial measures
used in this press release to their most comparable GAAP measures
is not available without unreasonable effort due to the uncertainty
regarding, and the potential variability of, certain of the
adjustments made to such measures that may be incurred in the
future.
Forward-looking Statements
This press release contains forward-looking statements,
including statements about: Q2’s addressable market and expanding
market opportunity; Q2’s long-term operating and financial targets;
Q2’s ability to lead and capitalize on the new frontier in digital
financial services; Q2’s long-term growth and margin expansion
opportunities and targets; market forces shaping the financial
services industry; Q2’s strategic advantages; Q2’s estimates for
2021 usage of its solutions; and market acceptance of Q2’s
solutions. 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 performance and on global
economic and financial markets, including on Q2’s 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 COVID-19, government actions or
other factors continue to negatively impact or disrupt the markets
for Q2’s solutions and that the markets for Q2’s solutions do not
return to normal or 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 impact 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 or any future period, including that any
declines in bookings growth may not impact Q2’s revenue and
financial performance until future periods; (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 cyberattacks, data breaches and breaches of
security measures within Q2’s products, systems and infrastructure
or the products, systems and infrastructure of third parties upon
which Q2 relies and the resultant costs and liabilities and harm to
Q2’s business and reputation 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 2021 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, including its Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q. These documents are available on
the SEC Filings section of the Investor Relations section of Q2’s
website at http://investors.Q2.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.
1 On Q2’s digital banking platform. Full year estimates for
calendar year 2021 based on internal company data as of December
14, 2021.
2 With Q2’s loan pricing solutions. Full year estimates for
calendar year 2021 based on internal company data as of December
14, 2021.
3 Total financial institution customers contracted for one or
more of Q2’s products across the entire portfolio, as of September
30, 2021.
4 We define “Tier 1” customers as having total assets equal to
or greater than $5 billion. Based on total assets reported by FDIC
and NCUA, respectively, for all financial institutions as of
September 30, 2021.
5 Based on total assets reported by FDIC, for all FDIC-insured
banks as of September 30, 2021.
6 Internal industry estimates for the average duration from an
initial sales cycle discussion to deployment of a customer within
the traditional development model are 9 to 15 months. Reduction in
time and cost is based upon internal data for the duration of
delivery through Q2 Innovation Studio from initial sales cycle
discussion to deployment.
7 As of December 14, 2021.
8 Based on submitted API requests to Q2’s BaaS platform. Based
on monthly averages for the first 6 months of 2021.
9 Source: Internal estimates and “Which Industries Present the
Brightest Growth Opportunities for Technology Investments?”
International Data Corporation, August 2021.
10 For digital banking platform customers, as disclosed in Q2’s
Annual Report on Form 10-K, as filed with the SEC on February 19,
2021.
11 Based on digital banking platform customers that went live
from 2010 through 2019. Growth of contracted recurring revenue by
Q2 platform customers 36 months after implementation.
12 Revenue Retention Rate as defined and disclosed in Q2’s
Annual Report on Form 10-K, as filed with the SEC on February 19,
2021 for the full years 2018, 2019 and 2020. Average Net Revenue
Retention since 2018 is calculated based on Q2’s revenue retention
rate for the full years 2018, 2019 and 2020 and a revenue retention
rate of 120% for the first 9 months of 2021.
13 Reflects the revenue expansion of distinct customer use
cases. Those use cases are not necessarily indicative of revenue
expansion across all BaaS customers.
14 The forward-looking figures in this press release represent
Q2’s long-term financial targets, may prove to be inaccurate, and
do not constitute guidance.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211214005415/en/
MEDIA CONTACT Jean Kondo Q2 Holdings, Inc. O:
1-510-823-4728 Jean.Kondo@Q2.com
INVESTOR CONTACT Josh Yankovich Q2 Holdings, Inc. O:
1-512-682-4463 josh.yankovich@Q2.com
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