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Q2 Holdings, Inc. Announces Second Quarter 2017 Financial Results

August 2, 2017 4:30 PM

Total second quarter revenue of $47.6 million, up 32 percent year-over-year

AUSTIN, Texas--(BUSINESS WIRE)-- Q2 Holdings, Inc. (NYSE: QTWO), a leading provider of secure, cloud-based digital banking solutions for community-focused financial institutions, today announced results for its second quarter ending June 30, 2017.

Second Quarter 2017 Results

“We executed well across the organization in the second quarter,” said Matt Flake, CEO of Q2. “I was particularly pleased with the uptick in bank activity in the quarter and continued strength across credit unions. I am encouraged by our Tier 1 pipeline and optimistic that we should convert multiple opportunities in the second half of 2017.”

Second Quarter 2017 Highlights

Financial Outlook

Q2 Holdings is providing guidance for its third quarter 2017 as follows:

Q2 Holdings is providing guidance for the full-year 2017 as follows:

Conference Call Details

Date:

Aug. 3, 2017

Time:

8:30 a.m. EDT

Hosts:

Matt Flake, CEO / Jennifer Harris, CFO

Dial in:

US toll free: 1-877-201-0168

International: 1-647-788-4901

Conference ID:

51913770

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 positive sales momentum, increased purchasing activity among credit unions and banks, optimism about our Tier 1 pipeline, 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,
2017 2016
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 34,471 $ 54,873
Restricted cash 2,915 1,315
Investments 44,185 42,249
Accounts receivable, net 15,012 12,240
Prepaid expenses and other current assets 4,074 3,215
Deferred solution and other costs, current portion 8,182 8,839
Deferred implementation costs, current portion 3,400 2,938
Total current assets 112,239 125,669
Property and equipment, net 31,565 27,480
Deferred solution and other costs, net of current portion 13,213 11,125
Deferred implementation costs, net of current portion 8,276 8,096
Intangible assets, net 14,718 15,208
Goodwill 12,876 12,876
Other long-term assets 513 526
Total assets $ 193,400 $ 200,980
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 19,900 $ 29,088
Deferred revenues, current portion 32,057 30,123
Total current liabilities 51,957 59,211
Deferred revenues, net of current portion 30,500 31,707
Deferred rent, net of current portion 10,010 9,466
Other long-term liabilities 586 361
Total liabilities 93,053 100,745
Stockholders' equity:
Common stock 4 4
Treasury stock (597 ) (417 )
Additional paid-in capital 241,835 226,485
Accumulated other comprehensive loss (84 ) (54 )
Accumulated deficit (140,811 ) (125,783 )
Total stockholders' equity 100,347 100,235
Total liabilities and stockholders' equity $ 193,400 $ 200,980
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,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues $ 47,625 $ 36,005 $ 92,159 $ 69,764
Cost of revenues (1) (2) 24,328 18,870 47,100 36,684
Gross profit 23,297 17,135 45,059 33,080
Operating expenses:
Sales and marketing (1) 11,096 9,611 20,974 17,818
Research and development (1) 9,922 7,830 19,573 15,733
General and administrative (1) 9,268 7,437 17,720 14,858
Acquisition related costs 351 1,476 699 2,958
Amortization of acquired intangibles 373 368 744 736
Unoccupied lease charges - 33 - 33
Total operating expenses 31,010 26,755 59,710 52,136
Loss from operations (7,713 ) (9,620 ) (14,651 ) (19,056 )
Other income (expense), net 109 (85 ) 143 (71 )
Loss before income taxes (7,604 ) (9,705 ) (14,508 ) (19,127 )
Provision for income taxes (217 ) (3 ) (353 ) (233 )
Net loss $ (7,821 ) $ (9,708 ) $ (14,861 ) $ (19,360 )
Other comprehensive loss
Unrealized gain (loss) on available-for-sale investments (29 ) 16 (30 ) 105
Comprehensive loss $ (7,850 ) $ (9,692 ) $ (14,891 ) $ (19,255 )
Net loss per common share:
Net loss per common share, basic and diluted $ (0.19 ) $ (0.25 ) $ (0.36 ) $ (0.49 )
Weighted average common shares outstanding, basic and diluted 41,064 39,434 40,848 39,229

(1)

Includes stock-based compensation expenses as follows:

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Cost of revenues $ 819 $ 455 $ 1,543 $ 861
Sales and marketing 812 492 1,443 927
Research and development 1,033 652 1,978 1,284
General and administrative 2,358 1,258 4,255 2,390
Total stock-based compensation expenses $ 5,022 $ 2,857 $ 9,219 $ 5,462
(2) Includes amortization of acquired technology of $0.9 million and $0.8 million for the three months ended June 30, 2017 and 2016, respectively,
and $1.8 million and $1.6 million for the six months ended June 30, 2017 and 2016, respectively.
Q2 Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended June 30,
2017 2016
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (14,861 ) $ (19,360 )
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred implementation, solution and other costs 3,514 3,192
Depreciation and amortization 7,227 5,871
Amortization of debt issuance costs 28 48
Amortization of premiums on investments 151 221
Stock-based compensation expenses 9,219 5,462
Deferred income taxes 234 139
Other non-cash charges 38 178
Changes in operating assets and liabilities (15,810 ) 1,860
Cash used in operating activities (10,260 ) (2,389 )
Cash flows from investing activities:
Net redemptions (purchases) of investments (2,119 ) 341
Purchases of property and equipment (7,625 ) (8,745 )
Business combinations and asset acquisitions, net of cash acquired (3,816 ) (95 )
Capitalization of software development costs (762 ) (1,190 )
Purchases of intangible assets - (138 )
Increase in restricted cash (1,600 ) -
Cash used in investing activities (15,922 ) (9,827 )
Cash flows from financing activities:
Payments on financing obligations and capital leases, net - (5,051 )
Proceeds from issuance of common stock 5,780 2,744
Net cash provided by (used in) financing activities 5,780 (2,307 )
Net decrease in cash and cash equivalents (20,402 ) (14,523 )
Cash and cash equivalents, beginning of period 54,873 67,049
Cash and cash equivalents, end of period $ 34,471 $ 52,526
Q2 Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP gross profit $ 23,297 $ 17,135 $ 45,059 $ 33,080
Stock-based compensation 819 455 1,543 861
Amortization of acquired technology 912 797 1,798 1,595
Non-GAAP gross profit $ 25,028 $ 18,387 $ 48,400 $ 35,536
Non-GAAP gross margin:
Non-GAAP gross profit $ 25,028 $ 18,387 $ 48,400 $ 35,536
GAAP revenue 47,625 36,005 92,159 69,764
Non-GAAP gross margin 52.6 % 51.1 % 52.5 % 50.9 %
GAAP sales and marketing expense $ 11,096 $ 9,611 $ 20,974 $ 17,818
Stock-based compensation (812 ) (492 ) (1,443 ) (927 )
Non-GAAP sales and marketing expense $ 10,284 $ 9,119 $ 19,531 $ 16,891
GAAP research and development expense $ 9,922 $ 7,830 $ 19,573 $ 15,733
Stock-based compensation (1,033 ) (652 ) (1,978 ) (1,284 )
Non-GAAP research and development expense $ 8,889 $ 7,178 $ 17,595 $ 14,449
GAAP general and administrative expense $ 9,268 $ 7,437 $ 17,720 $ 14,858
Stock-based compensation (2,358 ) (1,258 ) (4,255 ) (2,390 )
Non-GAAP general and administrative expense $ 6,910 $ 6,179 $ 13,465 $ 12,468
GAAP operating loss $ (7,713 ) $ (9,620 ) $ (14,651 ) $ (19,056 )
Stock-based compensation 5,022 2,857 9,219 5,462
Acquisition related costs 351 1,476 699 2,958
Amortization of acquired technology 912 797 1,798 1,595
Amortization of acquired intangibles 373 368 744 736
Unoccupied lease charges - 33 - 33
Non-GAAP operating loss $ (1,055 ) $ (4,089 ) $ (2,191 ) $ (8,272 )
GAAP net loss $ (7,821 ) $ (9,708 ) $ (14,861 ) $ (19,360 )
Stock-based compensation 5,022 2,857 9,219 5,462
Acquisition related costs 351 1,476 699 2,958
Amortization of acquired technology 912 797 1,798 1,595
Amortization of acquired intangibles 373 368 744 736
Unoccupied lease charges - 33 - 33
Non-GAAP net loss $ (1,163 ) $ (4,177 ) $ (2,401 ) $ (8,576 )
Reconciliation of GAAP net loss to adjusted EBITDA:
GAAP net loss $ (7,821 ) $ (9,708 ) $ (14,861 ) $ (19,360 )
Depreciation and amortization 3,702 2,944 7,227 5,871
Stock-based compensation 5,022 2,857 9,219 5,462
Provision for income taxes 217 3 353 233
Interest (income) expense, net (109 ) 85 (143 ) 71

Acquisition related costs

351 1,476 699 2,958
Unoccupied lease charges - 33 - 33
Adjusted EBITDA $ 1,362 $ (2,310 ) $ 2,494 $ (4,732 )

Media Contact:

Red Fan Communications

Emma Chase, 512-551-9253

C: 512-917-4319

[email protected]

or

Investor Contact:

Q2 Holdings, Inc.

Bob Gujavarty, 512-439-3447

[email protected]

Source: Q2 Holdings, Inc.

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