Q2 Holdings, Inc. Announces First Quarter 2024 Financial Results
GAAP Results for the First Quarter 2024
-
Revenue for the first quarter of
$165.5 million , up 8 percent year-over-year and up 2 percent from the fourth quarter of 2023.
- GAAP gross margin for the first quarter of 49.7 percent, up from 47.9 percent in the prior-year quarter and down from 50.2 percent in the fourth quarter of 2023.
-
GAAP net loss for the first quarter of
$13.8 million compared to GAAP net loss of$0.5 million for the prior-year quarter, which included a one-time gain of$19.9 million from the partial repurchase of convertible senior notes, and net loss of$18.1 million for the fourth quarter of 2023.
Non-GAAP Results for the First Quarter 2024
-
Non-GAAP revenue for the first quarter of
$165.5 million , up 8 percent year-over-year and up 2 percent from the fourth quarter of 2023.
- Non-GAAP gross margin for the first quarter of 54.9 percent, up from 54.0 percent for the prior-year quarter and down from 56.0 percent for the fourth quarter of 2023.
-
Adjusted EBITDA for the first quarter of
$25.2 million , up from$16.5 million for the prior-year quarter and$23.2 million for the fourth quarter of 2023.
For a reconciliation of our GAAP to non-GAAP results, please see the tables below.
“We had a strong start to the year with highlights across the business,” said Q2 CEO
First Quarter Highlights
- Signed four Tier 1 digital banking contracts including:
- Two new banks to utilize our retail and SMB solutions, with one also adding commercial in their initial agreement.
- Two expansion agreements with existing customers, resulting in both customers now utilizing the Q2 digital banking platform for retail, SMB and commercial solutions.
- Signed a greater number of total Tier 2 and 3 digital banking contracts during the quarter, compared to any quarter in 2023.
- Signed two Tier 1 expansion deals with existing customers utilizing our relationship pricing solutions.
-
Subscription Annualized Recurring Revenue increased to
$615.1 million , up 18 percent year-over-year from$521.3 million at the end of the first quarter of 2023.
-
Remaining Performance Obligations total, or Backlog, increased by
$83 million sequentially, resulting in a total committed Backlog of approximately$1.9 billion at quarter-end, representing 5 percent sequential growth and 25 percent year-over-year growth.
Q2's Digital Banking Platform servicing Retail, Small-to-Medium Business (SMB) and Commercial Solutions Continues to Drive New Customer Wins and Expansion Opportunities
Q2's single-platform approach, developed over two decades, enables financial institutions to serve retail, small business, and commercial customers with one solution. With Q2, customers can optimize their operations by merging various systems into one cohesive platform. This consolidation enhances the user experience and empowers customers to leverage our comprehensive technology ecosystem to boost operational efficiencies.
Q2’s single platform also enables key elements of Q2’s product strategy, such as
After a record sales and bookings performance in the fourth quarter of 2023, the benefits of Q2’s single-platform approach continued to drive net new sales momentum in the first quarter of 2024, with a strong concentration of Tier 2 digital banking deals and two net new Tier 1 wins.
In addition to driving net new sales success, Q2’s single platform and broad, diverse customer base create significant expansion opportunities with existing customers. For example, during the first quarter, Q2 closed two significant Tier 1 cross-sales where an existing customer that began with one aspect of the platform (e.g., retail) purchased the other (e.g., commercial). In one of these cases, contracted cross-sale revenue more than doubled the expected revenue contribution of the customer relationship.
Q2 estimates that its customer base, spanning approximately 1,400 customers, presents an expansion opportunity of
“For the first quarter, we delivered both revenue and adjusted EBITDA results above the high end of our guidance,” said Q2 CFO
Financial Outlook
As of
-
Total non-GAAP revenue of
$169.0 million to$172.0 million , which would represent year-over-year growth of 9 percent to 11 percent.
-
Adjusted EBITDA of
$26.0 million to$28.0 million , representing 15 to 16 percent of non-GAAP revenue for the quarter.
-
Total non-GAAP revenue of
$686.0 million to$692.0 million , which would represent year-over-year growth of 10 to 11 percent.
-
Adjusted EBITDA of
$110.0 million to$114.0 million , representing 16 to 17 percent of non-GAAP revenue for the year.
Conference Call Details
Date: |
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Hosts: |
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Conference Call Registration: |
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Webcast Registration: |
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All participants must register using the above links (either the webcast or conference call). A webcast of the conference call and financial results will be accessible from the investor relations section of the Q2 website at http://investors.Q2.com/. In addition, a live conference call dial-in will be available upon registration. Participants should dial in at least 10 minutes before the start of the conference call. An archived replay of the webcast will be available on this website for a limited time after the call. Q2 has used, and intends to continue to use, its investor relations website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.
About
Q2 is a leading provider of digital transformation solutions for financial services, serving banks, credit unions, alternative finance companies, and fintechs in the
Use of Non-GAAP Measures
Q2 uses the following non-GAAP financial measures: non-GAAP revenue; adjusted EBITDA; adjusted EBITDA margin; 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 expense; non-GAAP operating income (loss); and free cash flow. 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 and other (income) expense, taxes, depreciation and amortization, stock-based compensation, transaction-related costs, lease and other restructuring charges, gain on extinguishment of debt and the impact to deferred revenue from purchase accounting. In the case of adjusted EBITDA margin, Q2 calculates adjusted EBITDA margin by dividing adjusted EBITDA by non-GAAP revenue. In the case of non-GAAP gross margin and non-GAAP gross profit, Q2 adjusts gross profit and gross margin for stock-based compensation, amortization of acquired technology, transaction-related costs, lease and other restructuring charges and the impact to deferred revenue from purchase accounting. 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. Non-GAAP operating expense is calculated by taking the sum of non-GAAP sales and marketing expenses, non-GAAP research and development expense, and non-GAAP general and administrative expense. In the case of non-GAAP operating income (loss), Q2 adjusts operating income (loss), for stock-based compensation, transaction-related costs, amortization of acquired technology, amortization of acquired intangibles, lease and other restructuring charges, and the impact to deferred revenue from purchase accounting. In the case of free cash flow, Q2 adjusts net cash provided by (used in) operating activities for purchases of property and equipment and capitalized software development costs.
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. 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: the ability of Q2’s single-platform approach to allow customers to serve both retail and commercial users and drive meaningful expansion opportunities; Q2’s continued net new sales execution; Q2’s ability to deliver on its profitable growth strategy; Q2’s ability to achieve long-term value creation; the benefits and capabilities of Q2's single-platform approach and
Additional information relating to the uncertainty affecting the Q2 business is contained in Q2's filings with the
Condensed Consolidated Balance Sheets (in thousands) (unaudited) |
||||||||
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Assets |
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Current assets: |
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
274,522 |
|
|
$ |
229,655 |
|
Restricted cash |
|
|
4,257 |
|
|
|
3,977 |
|
Investments |
|
|
63,939 |
|
|
|
94,353 |
|
Accounts receivable, net |
|
|
54,292 |
|
|
|
42,899 |
|
Contract assets, current portion, net |
|
|
8,579 |
|
|
|
9,193 |
|
Prepaid expenses and other current assets |
|
|
15,542 |
|
|
|
11,625 |
|
Deferred solution and other costs, current portion |
|
|
28,355 |
|
|
|
27,521 |
|
Deferred implementation costs, current portion |
|
|
9,012 |
|
|
|
8,741 |
|
Total current assets |
|
|
458,498 |
|
|
|
427,964 |
|
Property and equipment, net |
|
|
37,871 |
|
|
|
41,178 |
|
Right of use assets |
|
|
34,957 |
|
|
|
35,453 |
|
Deferred solution and other costs, net of current portion |
|
|
31,861 |
|
|
|
26,090 |
|
Deferred implementation costs, net of current portion |
|
|
22,172 |
|
|
|
21,480 |
|
Intangible assets, net |
|
|
115,249 |
|
|
|
121,572 |
|
|
|
|
512,869 |
|
|
|
512,869 |
|
Contract assets, net of current portion and allowance |
|
|
11,702 |
|
|
|
12,210 |
|
Other long-term assets |
|
|
3,208 |
|
|
|
2,609 |
|
Total assets |
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$ |
1,228,387 |
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$ |
1,201,425 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
49,635 |
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$ |
62,404 |
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Deferred revenues, current portion |
|
|
132,387 |
|
|
|
118,723 |
|
Lease liabilities, current portion |
|
|
10,630 |
|
|
|
10,436 |
|
Total current liabilities |
|
|
192,652 |
|
|
|
191,563 |
|
Convertible notes, net of current portion |
|
|
490,960 |
|
|
|
490,464 |
|
Deferred revenues, net of current portion |
|
|
26,851 |
|
|
|
17,350 |
|
Lease liabilities, net of current portion |
|
|
44,429 |
|
|
|
45,588 |
|
Other long-term liabilities |
|
|
8,524 |
|
|
|
7,981 |
|
Total liabilities |
|
|
763,416 |
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|
|
752,946 |
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|
|
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Stockholders' equity: |
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Common stock |
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|
6 |
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6 |
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Additional paid-in capital |
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1,105,808 |
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|
|
1,075,278 |
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Accumulated other comprehensive loss |
|
|
(1,306 |
) |
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|
(1,111 |
) |
Accumulated deficit |
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|
(639,537 |
) |
|
|
(625,694 |
) |
Total stockholders' equity |
|
|
464,971 |
|
|
|
448,479 |
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Total liabilities and stockholders' equity |
|
$ |
1,228,387 |
|
|
$ |
1,201,425 |
|
Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands, except per share data) (unaudited) |
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Three Months Ended |
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2024 |
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2023 |
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Revenues (1) |
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$ |
165,508 |
|
|
$ |
153,008 |
|
Cost of revenues (2) |
|
|
83,256 |
|
|
|
79,711 |
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Gross profit |
|
|
82,252 |
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|
|
73,297 |
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|
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Operating expenses: |
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|
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Sales and marketing |
|
|
25,445 |
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|
|
28,144 |
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Research and development |
|
|
34,862 |
|
|
|
34,425 |
|
General and administrative |
|
|
30,176 |
|
|
|
24,692 |
|
Transaction-related costs |
|
|
— |
|
|
|
12 |
|
Amortization of acquired intangibles |
|
|
4,828 |
|
|
|
5,262 |
|
Lease and other restructuring charges |
|
|
1,126 |
|
|
|
1,961 |
|
Total operating expenses |
|
|
96,437 |
|
|
|
94,496 |
|
Loss from operations |
|
|
(14,185 |
) |
|
|
(21,199 |
) |
Total other income (expense), net (3) |
|
|
1,897 |
|
|
|
20,701 |
|
Loss before income taxes |
|
|
(12,288 |
) |
|
|
(498 |
) |
Provision for income taxes |
|
|
(1,555 |
) |
|
|
(18 |
) |
Net loss |
|
$ |
(13,843 |
) |
|
$ |
(516 |
) |
Other comprehensive income (loss): |
|
|
|
|
||||
Unrealized gain (loss) on available-for-sale investments |
|
|
126 |
|
|
|
1,036 |
|
Foreign currency translation adjustment |
|
|
(321 |
) |
|
|
(17 |
) |
Comprehensive income (loss) |
|
$ |
(14,038 |
) |
|
$ |
503 |
|
|
|
|
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Net loss per common share: |
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Net loss per common share, basic and diluted |
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$ |
(0.23 |
) |
|
$ |
(0.01 |
) |
Weighted average common shares outstanding, basic and diluted |
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|
59,446 |
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|
|
57,885 |
(1) |
Includes deferred revenue reduction from purchase accounting of zero and |
(2) |
Includes amortization of acquired technology of |
(3) |
Includes a gain of |
Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) |
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Three Months Ended |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(13,843 |
) |
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$ |
(516 |
) |
Adjustments to reconcile net loss to net cash from operating activities: |
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Amortization of deferred implementation, solution and other costs |
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|
6,411 |
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|
|
6,069 |
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Depreciation and amortization |
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|
17,523 |
|
|
|
17,543 |
|
Amortization of debt issuance costs |
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|
496 |
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|
|
618 |
|
Amortization of premiums and discounts on investments |
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(371 |
) |
|
|
(1,097 |
) |
Stock-based compensation expense |
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|
20,801 |
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|
18,086 |
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Deferred income taxes |
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(269 |
) |
|
|
(526 |
) |
Gain on extinguishment of debt |
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|
— |
|
|
|
(19,312 |
) |
Other non-cash items |
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|
405 |
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|
|
1,576 |
|
Changes in operating assets and liabilities |
|
|
(17,717 |
) |
|
|
(18,547 |
) |
Net cash provided by operating activities |
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|
13,436 |
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|
|
3,894 |
|
Cash flows from investing activities: |
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|
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|
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Net maturities of investments |
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|
30,911 |
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|
|
85,073 |
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Purchases of property and equipment |
|
|
(1,405 |
) |
|
|
(1,032 |
) |
Capitalized software development costs |
|
|
(6,010 |
) |
|
|
(6,049 |
) |
Net cash provided by investing activities |
|
|
23,496 |
|
|
|
77,992 |
|
Cash flows from financing activities: |
|
|
|
|
||||
Payment for maturity of 2023 convertible notes |
|
|
— |
|
|
|
(10,908 |
) |
Payment for repurchases of convertible notes |
|
|
— |
|
|
|
(149,640 |
) |
Proceeds from capped calls related to convertible notes |
|
|
— |
|
|
|
139 |
|
Proceeds from the exercise of stock options and ESPP |
|
|
8,404 |
|
|
|
90 |
|
Net cash provided by (used in) financing activities |
|
|
8,404 |
|
|
|
(160,319 |
) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
(189 |
) |
|
|
60 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
45,147 |
|
|
|
(78,373 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
233,632 |
|
|
|
201,902 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
278,779 |
|
|
$ |
123,529 |
|
Reconciliation of GAAP to Non-GAAP Measures (in thousands) (unaudited) |
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Three Months Ended |
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2024 |
|
2023 |
||||
GAAP revenue |
|
$ |
165,508 |
|
|
$ |
153,008 |
|
Deferred revenue reduction from purchase accounting |
|
|
— |
|
|
|
116 |
|
Non-GAAP revenue |
|
$ |
165,508 |
|
|
$ |
153,124 |
|
|
|
|
|
|
||||
GAAP gross profit |
|
$ |
82,252 |
|
|
$ |
73,297 |
|
Stock-based compensation |
|
|
3,165 |
|
|
|
3,373 |
|
Amortization of acquired technology |
|
|
5,504 |
|
|
|
5,880 |
|
Lease and other restructuring charges |
|
|
7 |
|
|
|
— |
|
Deferred revenue reduction from purchase accounting |
|
|
— |
|
|
|
116 |
|
Non-GAAP gross profit |
|
$ |
90,928 |
|
|
$ |
82,666 |
|
|
|
|
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|
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Non-GAAP gross margin: |
|
|
|
|
||||
Non-GAAP gross profit |
|
$ |
90,928 |
|
|
$ |
82,666 |
|
Non-GAAP revenue |
|
|
165,508 |
|
|
|
153,124 |
|
Non-GAAP gross margin |
|
|
54.9 |
% |
|
|
54.0 |
% |
|
|
|
|
|
||||
GAAP sales and marketing expense |
|
$ |
25,445 |
|
|
$ |
28,144 |
|
Stock-based compensation |
|
|
(3,871 |
) |
|
|
(4,260 |
) |
Non-GAAP sales and marketing expense |
|
$ |
21,574 |
|
|
$ |
23,884 |
|
|
|
|
|
|
||||
GAAP research and development expense |
|
$ |
34,862 |
|
|
$ |
34,425 |
|
Stock-based compensation |
|
|
(3,843 |
) |
|
|
(3,776 |
) |
Non-GAAP research and development expense |
|
$ |
31,019 |
|
|
$ |
30,649 |
|
|
|
|
|
|
||||
GAAP general and administrative expense |
|
$ |
30,176 |
|
|
$ |
24,692 |
|
Stock-based compensation |
|
|
(9,922 |
) |
|
|
(6,677 |
) |
Non-GAAP general and administrative expense |
|
$ |
20,254 |
|
|
$ |
18,015 |
|
|
|
|
|
|
||||
GAAP operating loss |
|
$ |
(14,185 |
) |
|
$ |
(21,199 |
) |
Deferred revenue reduction from purchase accounting |
|
|
— |
|
|
|
116 |
|
Stock-based compensation |
|
|
20,801 |
|
|
|
18,086 |
|
Transaction-related costs |
|
|
— |
|
|
|
12 |
|
Amortization of acquired technology |
|
|
5,504 |
|
|
|
5,880 |
|
Amortization of acquired intangibles |
|
|
4,828 |
|
|
|
5,262 |
|
Lease and other restructuring charges |
|
|
1,133 |
|
|
|
1,961 |
|
Non-GAAP operating income |
|
$ |
18,081 |
|
|
$ |
10,118 |
|
|
|
|
|
|
||||
Reconciliation of GAAP net loss to adjusted EBITDA: |
|
|
|
|
||||
GAAP net loss |
|
$ |
(13,843 |
) |
|
$ |
(516 |
) |
Deferred revenue reduction from purchase accounting |
|
|
— |
|
|
|
116 |
|
Stock-based compensation |
|
|
20,801 |
|
|
|
18,086 |
|
Transaction-related costs |
|
|
— |
|
|
|
12 |
|
Depreciation and amortization |
|
|
17,523 |
|
|
|
17,543 |
|
Lease and other restructuring charges |
|
|
1,133 |
|
|
|
1,961 |
|
Provision for income taxes |
|
|
1,555 |
|
|
|
18 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
(19,869 |
) |
Interest and other (income) expense, net |
|
|
(1,936 |
) |
|
|
(879 |
) |
Adjusted EBITDA |
|
$ |
25,233 |
|
|
$ |
16,472 |
|
|
|
|
|
|
||||
Adjusted EBITDA margin |
|
|
15.2 |
% |
|
|
10.8 |
% |
Reconciliation of Free Cash Flow (in thousands) (unaudited) |
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|
|
Three Months Ended |
||||||
|
|
2024 |
|
2023 |
||||
|
|
|
||||||
Net cash provided by (used in) operating activities |
|
$ |
13,436 |
|
|
$ |
3,894 |
|
Purchases of property and equipment |
|
|
(1,405 |
) |
|
|
(1,032 |
) |
Capitalized software development costs |
|
|
(6,010 |
) |
|
|
(6,049 |
) |
Free cash flow |
|
$ |
6,021 |
|
|
$ |
(3,187 |
) |
Reconciliation of GAAP to Non-GAAP Revenue Outlook (in thousands) (unaudited) |
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|
|
Q2 2024 Outlook |
|
Full Year 2024 Outlook |
||||||||
|
|
Low |
|
High |
|
Low |
|
High |
||||
|
|
|
|
|
|
|
|
|
||||
GAAP revenue |
|
$ |
169,000 |
|
$ |
172,000 |
|
$ |
686,000 |
|
$ |
692,000 |
Deferred revenue reduction from purchase accounting |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Non-GAAP revenue |
|
$ |
169,000 |
|
$ |
172,000 |
|
$ |
686,000 |
|
$ |
692,000 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240501418871/en/
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M: +1-510-823-4728
jean.kondo@Q2.com
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Source: