Q2 Holdings, Inc. Announces Fourth Quarter and Full-Year 2023 Financial Results

Rhea-AI Summary

Q2 Holdings, Inc. (NYSE: QTWO) announced strong financial results for Q4 and full-year 2023, with revenue up 10-11% year-over-year. GAAP net loss decreased significantly, while adjusted EBITDA showed substantial growth. The company also provided optimistic guidance for 2024, with new three-year financial targets aiming for solid revenue growth and profitability expansion.

Positive

• Revenue for Q4 2023 was $162.1 million, up 11% year-over-year, and full-year revenue was $624.6 million, up 10% year-over-year.
• GAAP gross margin for Q4 was 50.2%, up from 45.2% in the prior-year quarter, and full-year gross margin was 48.5%, up from 45.3% in 2022.
• GAAP net loss for Q4 was $18.1 million, a significant decrease from $32.4 million in the prior-year quarter, and full-year net loss was $65.4 million, down from $109.0 million in 2022.
• Non-GAAP revenue for Q4 was $162.2 million, up 11% year-over-year, and full-year non-GAAP revenue was $625.0 million, up 10% year-over-year.
• Adjusted EBITDA for Q4 was $23.2 million, up from $8.4 million in the prior-year quarter, and full-year adjusted EBITDA was $76.9 million, up from $36.9 million in 2022.
• Q2 Holdings provided guidance for Q1 2024 with non-GAAP revenue of $161.7 million to $164.7 million and adjusted EBITDA of $22.0 million to $24.0 million.
• The company also offered full-year 2024 guidance with non-GAAP revenue of $683.0 million to $689.0 million and adjusted EBITDA of $107.0 million to $111.0 million.
• New three-year financial targets include average annual subscription revenue growth of approximately 14%, average annual adjusted EBITDA margin expansion of 300 to 400 basis points, and free cash flow of greater than 70% of total adjusted EBITDA for 2026.

Negative

• None.

Insights

Financial Analyst

The recent financial results from Q2 Holdings, Inc. reflect a company experiencing growth and improved profitability. An 11 percent year-over-year increase in fourth-quarter revenue and a 10 percent increase for the full year are solid indicators of the company's expanding market presence. The improvement in GAAP gross margin, from 45.2 percent to 50.2 percent for the quarter and 45.3 percent to 48.5 percent for the year, suggests efficiency gains in cost management or an advantageous shift in the company's revenue mix.

Moreover, the substantial reduction in GAAP net loss from $109.0 million in the full year 2022 to $65.4 million in 2023 is a positive sign for stakeholders, as it may indicate a trajectory towards future profitability. However, the company still operates at a loss, which could be a concern for investors focused on bottom-line growth. The adjusted EBITDA's significant increase, more than doubling from the previous year, is particularly noteworthy as it excludes several non-cash expenses and provides a clearer picture of operational performance.

Investors should be aware of the company's forward-looking guidance, which remains optimistic with projected non-GAAP revenue growth and adjusted EBITDA margins. These projections could influence the stock's performance as they set expectations for the market. The ambitious three-year financial targets, including average annual subscription revenue growth of approximately 14 percent and adjusted EBITDA margin expansion, suggest confidence in the company's strategic direction.

Market Research Analyst

Q2 Holdings' record year in net new bookings, renewals and backlog growth is a testament to its competitive positioning in the digital transformation solutions market for financial services. The company's focus on deposit growth solutions resonates with the current needs of financial institutions, which are increasingly seeking digital capabilities to attract and retain customers. Signing four Tier 1 digital banking contracts and expanding relationships with top U.S. banks underscores the company's ability to secure large-scale deals and suggests a robust sales pipeline.

The reported 19 percent year-over-year increase in Subscription Annualized Recurring Revenue (ARR) is particularly encouraging, as recurring revenue streams provide greater revenue predictability and can enhance valuation multiples. The 23 percent year-over-year growth in Remaining Performance Obligation, or Backlog, indicates a strong future revenue stream, which is critical for long-term planning and investment.

From a market perspective, the financial services industry's ongoing digital transformation presents a growing market opportunity for Q2 Holdings. The company's ability to capitalize on this trend will be essential for sustaining growth rates and achieving the new three-year financial targets.

Economist

The financial health of Q2 Holdings, Inc. can be seen as a microcosm of the broader economic environment, particularly in the technology and financial services sectors. The company's increased gross margins and reduced net losses indicate a potentially improving economic situation for tech companies focused on digital transformation after a period of market volatility and uncertainty. The emphasis on digital banking solutions aligns with the broader economic shift towards digitalization and automation, which has been accelerated by the pandemic.

The importance of free cash flow as a metric cannot be overstated, as it is a critical indicator of a company's financial flexibility and its ability to fund growth initiatives, pay dividends, or reduce debt. Q2 Holdings' target of achieving free cash flow greater than 70 percent of adjusted EBITDA by 2026 suggests a strategic focus on efficient capital allocation and operational excellence.

Investors and stakeholders should consider macroeconomic factors such as interest rate changes, which can impact the financial sector's investment in technology solutions. Additionally, as a service provider to financial institutions, Q2 Holdings' performance is indirectly tied to the health of the banking sector, which can be affected by economic cycles, regulatory changes and competitive dynamics.

AUSTIN, Texas--(BUSINESS WIRE)-- Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of digital transformation solutions for financial services, today announced results for its fourth quarter and full year ending December 31, 2023.

GAAP Results for the Fourth Quarter and Full-Year 2023

• Revenue for the fourth quarter of $162.1 million, up 11 percent year-over-year and up 5 percent from the third quarter of 2023. Full-year 2023 revenue of $624.6 million, up 10 percent year-over-year.

• GAAP gross margin for the fourth quarter of 50.2 percent, up from 45.2 percent for the prior-year quarter and up from 47.8 percent for the third quarter of 2023. GAAP gross margin for full-year 2023 of 48.5 percent, up from 45.3 percent for the full-year 2022.

• GAAP net loss for the fourth quarter of $18.1 million, compared to GAAP net losses of $32.4 million for the prior-year quarter and $23.2 million for the third quarter of 2023. GAAP net loss for full-year 2023 of $65.4 million, compared to $109.0 million for full-year 2022.

Non-GAAP Results for the Fourth Quarter and Full-Year 2023

• Non-GAAP revenue for the fourth quarter of $162.2 million, up 11 percent year-over-year and up 5 percent from the third quarter of 2023. Full-year 2023 non-GAAP revenue of $625.0 million, up 10 percent year-over-year.

• Non-GAAP gross margin for the fourth quarter of 56.0 percent, up from the prior-year quarter of 51.5 percent and up from 53.9 percent for the third quarter of 2023. Non-GAAP gross margin for full-year 2023 of 54.5 percent, up from 51.6 percent for full-year 2022.

• Adjusted EBITDA for the fourth quarter of $23.2 million, up from $8.4 million for the prior-year quarter and $19.7 million for the third quarter of 2023. Full-year 2023 adjusted EBITDA of $76.9 million, up from $36.9 million for the full-year 2022.

For a reconciliation of our GAAP to non-GAAP results, please see the tables below.

“We closed out 2023 with our best bookings performance in company history, which included our two largest deals ever,” said Q2 CEO Matt Flake. “Our customers' focus on deposit growth drove heightened demand for our solutions throughout 2023, and our competitive differentiation enabled us to make 2023 a record year that included our highest-ever net new bookings, renewals, and backlog growth. This, coupled with our marked improvements in profitability expansion in the year, gives me confidence in our trajectory for 2024 and beyond.”

Fourth Quarter Highlights

• Signed four Tier 1 digital banking contracts including (a):

• Top 10 U.S. Credit Union to utilize our retail solutions;

• Three banks to utilize our commercial and small business solutions.

• Signed a new Top 4 U.S. bank to a relationship pricing solution contract.

• Signed an expansion deal with an existing Top 4 U.S. bank customer to further utilize our relationship pricing solutions.

• Subscription Annualized Recurring Revenue increased to $593.9 million, up 19 percent year-over-year from $500.9 million at the end of 2022.

• Remaining Performance Obligation total, or Backlog, increased by $269.2 million sequentially, resulting in total committed Backlog of approximately $1.8 billion at quarter-end, representing 17 percent sequential growth and 23 percent year-over-year growth.

“We delivered strong financial results to close out the year, with adjusted EBITDA at the high end of our guidance,” said David Mehok, Q2 CFO. “We've made significant strides in key financial metrics throughout 2023, effectively managing costs and strategically deploying capital. This led to more than doubling our full-year Adjusted EBITDA and a substantial increase in annual free cash flow when compared to the prior year. We believe that a strong demand environment and our progress on profitability improvements positions us well to execute on our new three-year financial targets.”

Financial Outlook

As of February 21, 2024, Q2 Holdings is providing guidance for its first quarter of 2024 and full-year 2024, which represents Q2 Holdings’ current estimates on Q2 Holdings’ operations and financial results. The financial information below represents forward-looking, non-GAAP financial information, including estimates of non-GAAP revenue and adjusted EBITDA. GAAP net loss is the most comparable GAAP measure to adjusted EBITDA. Adjusted EBITDA differs from GAAP net loss in that it excludes items such as depreciation and amortization, stock-based compensation, transaction-related costs, interest and other (income) expense, income taxes, lease and other restructuring charges, (gain) loss on extinguishment of debt and the impact to deferred revenue from purchase accounting. 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 forward-looking adjusted EBITDA guidance to GAAP net loss. However, it is important to note that these excluded items could be material to our results computed in accordance with GAAP in future periods.

Q2 Holdings is providing guidance for its first quarter of 2024 as follows:

• Total non-GAAP revenue of $161.7 million to $164.7 million, which would represent year-over-year growth of 6 to 8 percent.

• Adjusted EBITDA of $22.0 million to $24.0 million, representing 13 to 15 percent of non-GAAP revenue for the quarter.

Q2 Holdings is providing guidance for the full-year 2024 as follows:

• Total non-GAAP revenue of $683.0 million to $689.0 million, which would represent year-over-year growth of 9 to 10 percent.

• Adjusted EBITDA of $107.0 million to $111.0 million, representing approximately 16 percent of non-GAAP revenue for the year.

New Three-Year Financial Targets

Q2 Holdings is providing new three-year targets, for the years 2024 through 2026 as follows:

• Average annual subscription revenue growth of approximately 14 percent.

• Average annual adjusted EBITDA margin expansion of 300 to 400 basis points.

• Free Cash Flow of greater than 70 percent of our total Adjusted EBITDA for the full year of 2026.

Conference Call Details

Date:		Wednesday, February 21, 2024
Time:		5:00 p.m. EST
Hosts:		Matt Flake, CEO / David Mehok, CFO / Kirk Coleman, President / Jonathan Price, EVP Strategy and Emerging Businesses
Conference Call Registration:		https://conferencingportals.com/event/sPCVBfoJ
Webcast Registration:		https://events.q4inc.com/attendee/606425959

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 Holdings, Inc.

Q2 is a leading provider of digital transformation solutions for financial services, serving banks, credit unions, alternative finance companies, and fintechs in the U.S. and internationally. Q2 enables its financial institutions and fintech companies to provide comprehensive, data-driven digital engagement solutions for consumers, small businesses and corporate clients. Headquartered in Austin, Texas, Q2 has offices worldwide and is publicly traded on the NYSE under the stock symbol QTWO. To learn more, please visit Q2.com. Follow us on LinkedIn and X to stay up to date.

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) loss 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: strong demand for our solutions; our competitive differentiation; improvements in profitability expansion; our trajectory for 2024 and beyond; our progress on profitability improvements; our new three-year financial targets and our ability to execute on them; 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) global macroeconomic uncertainties and challenges in the financial services industry and credit markets, including as a result of recent bank failures, inflation and higher interest rates and their potential impacts on Q2's prospects' and customers' operations, the timing of prospect and customer implementations and purchasing decisions, Q2's business sales cycles and on account holder or end user, or End User, usage of Q2's solutions; (b) the risk of increased or new competition in Q2's existing markets and as Q2 enters new markets or new segments of existing markets, or as Q2 offers new solutions; (c) the risks associated with the development of Q2's solutions and changes to the market for Q2's solutions compared to Q2's expectations; (d) quarterly fluctuations in Q2's operating results relative to Q2's expectations and guidance and the accuracy of Q2's forecasts; (e) the risks and increased costs associated with managing growth and the challenges associated with improving global operations, hiring, retaining and motivating employees to support such growth, particularly in light of recent macroeconomic factors, including increased employee turnover, labor shortages, wage inflation and competition for talent; (f) the risks associated with Q2's transactional business which are typically driven by End-User behavior and can be influenced by external drivers outside of Q2's control; (g) the risks associated with effectively managing Q2's business and cost structure in an uncertain macroeconomic environment, including as a result of challenges in the financial services industry and the effects of seasonal or other unexpected trends; (h) the risks associated with geopolitical uncertainties, including the heightened risk of state-sponsored cyberattacks on financial services and other critical infrastructure; (i) the risks associated with accurately forecasting and managing the impacts of any macroeconomic downturn or challenges in the financial services industry on Q2's customers and their End Users, including in particular the impacts of any downturn on fintechs or alternative finance companies, and Q2's arrangements with them, which represent a newer market opportunity for us, a more complex revenue model for us and which may be more vulnerable to an economic downturn than Q2's financial institution customers; (j) 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; (k) the risk that errors, interruptions or delays in Q2's solutions or Web hosting negatively impacts Q2's business and sales; (l) the risks associated with cyberattacks, data and privacy 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 Q2's ability to sell Q2's solutions; (m) the difficulties and risks associated with developing and selling complex new solutions and enhancements, including those using artificial intelligence, or AI, with the technical and regulatory specifications and functionality required by Q2's customers and relevant governmental authorities; (n) regulatory risks, including risks related to evolving regulation of AI and machine learning and the receipt, collection, storage, processing and transfer of data; (o) the risks associated with Q2's sales and marketing capabilities, including partner relationships and the length, cost and unpredictability of Q2's sales cycle; (p) the risks inherent in third-party technology and implementation partnerships that could cause harm to Q2's business; (q) the risk that Q2 will not be able to maintain historical contract terms such as pricing and duration; (r) the general risks associated with the complexity of Q2's customer arrangements and Q2's solutions; (s) the risks associated with integrating acquired companies and successfully selling and maintaining their solutions; (t) litigation related to intellectual property and other matters and any related claims, negotiations and settlements; (u) the risks associated with further consolidation in the financial services industry; (v) the risks associated with selling Q2's solutions internationally and with the continued expansion of Q2's international operations; and (w) the risk that Q2's debt repayment obligations may adversely affect Q2's financial condition 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. 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.

Q2 Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
		December 31, 2023				December 31, 2022
Assets
Current assets:
Cash and cash equivalents		$	229,655			$	199,600
Restricted cash			3,977				2,302
Investments			94,353				233,753
Accounts receivable, net			42,899				46,735
Contract assets, current portion, net			9,193				8,909
Prepaid expenses and other current assets			11,625				10,832
Deferred solution and other costs, current portion			27,521				21,117
Deferred implementation costs, current portion			8,741				7,828
Total current assets			427,964				531,076
Property and equipment, net			41,178				56,695
Right of use assets			35,453				39,837
Deferred solution and other costs, net of current portion			26,090				26,410
Deferred implementation costs, net of current portion			21,480				18,713
Intangible assets, net			121,572				145,681
Goodwill			512,869				512,869
Contract assets, net of current portion and allowance			12,210				16,186
Other long-term assets			2,609				2,259
Total assets		$	1,201,425			$	1,349,726
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities		$	62,404			$	54,263
Convertible notes, current portion			—				10,903
Deferred revenues, current portion			118,723				117,468
Lease liabilities, current portion			10,436				9,408
Total current liabilities			191,563				192,042
Convertible notes, net of current portion			490,464				657,789
Deferred revenues, net of current portion			17,350				21,691
Lease liabilities, net of current portion			45,588				52,991
Other long-term liabilities			7,981				6,189
Total liabilities			752,946				930,702
Stockholders' equity:
Common stock			6				6
Additional paid-in capital			1,075,278				982,300
Accumulated other comprehensive loss			(1,111	)			(2,972	)
Accumulated deficit			(625,694	)			(560,310	)
Total stockholders' equity			448,479				419,024
Total liabilities and stockholders' equity		$	1,201,425			$	1,349,726

Q2 Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, except per share data)
(unaudited)
		Three Months Ended December 31,								Twelve Months Ended December 31,
			2023				2022				2023				2022
Revenues (1)		$	162,118			$	146,542			$	624,624			$	565,673
Cost of revenues (2)			80,725				80,340				321,973				309,328
Gross profit			81,393				66,202				302,651				256,345
Operating expenses:
Sales and marketing			26,554				28,505				109,522				108,214
Research and development			34,271				34,041				137,334				130,103
General and administrative			30,283				23,696				110,186				90,163
Transaction-related costs			—				294				24				1,176
Amortization of acquired intangibles			4,903				4,982				20,667				18,248
Lease and other restructuring charges			3,399				7,171				10,975				13,202
Total operating expenses			99,410				98,689				388,708				361,106
Loss from operations			(18,017	)			(32,487	)			(86,057	)			(104,761	)
Total other income (expense), net (3)			1,997				811				24,235				(1,314	)
Loss before income taxes			(16,020	)			(31,676	)			(61,822	)			(106,075	)
Provision for income taxes			(2,059	)			(735	)			(3,562	)			(2,908	)
Net loss		$	(18,079	)		$	(32,411	)		$	(65,384	)		$	(108,983	)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale investments			515				490				1,800				(1,873	)
Foreign currency translation adjustment			368				141				61				(964	)
Comprehensive loss		$	(17,196	)		$	(31,780	)		$	(63,523	)		$	(111,820	)
Net loss per common share:
Net loss per common share, basic and diluted		$	(0.31	)		$	(0.56	)		$	(1.12	)		$	(1.90	)
Weighted average common shares outstanding, basic and diluted			58,742				57,582				58,354				57,300

(1)		Includes deferred revenue reduction from purchase accounting of $0.1 million for each of the three months ended December 31, 2023 and 2022, and $0.3 million and $0.6 million for the twelve months ended December 31, 2023 and 2022, respectively.
(2)		Includes amortization of acquired technology of $5.8 million and $5.9 million for the three months ended December 31, 2023 and 2022, respectively, and $23.4 million and $22.7 million for the twelve months ended December 31, 2023 and 2022, respectively.
(3)		Includes a gain of $19.9 million related to the early extinguishment of a portion of our 2026 Notes and 2025 Notes for the twelve months ended December 31, 2023.

Q2 Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
		Twelve Months Ended December 31,
			2023				2022
Cash flows from operating activities:
Net loss		$	(65,384	)		$	(108,983	)
Adjustments to reconcile net loss to net cash from operating activities:
Amortization of deferred implementation, solution and other costs			25,848				23,270
Depreciation and amortization			71,707				61,659
Amortization of debt issuance costs			2,104				2,719
Amortization of premiums and discounts on investments			(3,192	)			(302	)
Stock-based compensation expense			79,188				65,157
Deferred income taxes			636				1,611
(Gain) loss on extinguishment of debt			(19,312	)			—
Other non-cash charges			4,386				11,919
Changes in operating assets and liabilities			(25,689	)			(20,494	)
Net cash provided by operating activities			70,292				36,556
Cash flows from investing activities:
Net maturities (purchases) of investments			143,911				(130,463	)
Purchases of property and equipment			(5,673	)			(11,142	)
Capitalized software development costs			(24,970	)			(18,910	)
Business combinations, net of cash acquired			—				(5,040	)
Net cash provided by (used in) investing activities			113,268				(165,555	)
Cash flows from financing activities:
Payment for maturity of 2023 convertible notes			(10,908	)			—
Payments for repurchases of convertible notes			(149,640	)			—
Proceeds from capped calls related to convertible notes			139				—
Proceeds from exercise of stock options and ESPP			8,397				5,882
Net cash provided by (used in) financing activities			(152,012	)			5,882
Effect of exchange rate changes on cash, cash equivalents and restricted cash			182				(802	)
Net increase (decrease) in cash, cash equivalents, and restricted cash			31,730				(123,919	)
Cash, cash equivalents, and restricted cash, beginning of period			201,902				325,821
Cash, cash equivalents, and restricted cash, end of period		$	233,632			$	201,902

Q2 Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, except per share data)
(Unaudited)
		Three Months Ended December 31,								Twelve Months Ended December 31,
			2023				2022				2023				2022
GAAP revenue		$	162,118			$	146,542			$	624,624			$	565,673
Deferred revenue reduction from purchase accounting			69				129				344				644
Non-GAAP revenue		$	162,187			$	146,671			$	624,968			$	566,317
GAAP gross profit		$	81,393			$	66,202			$	302,651			$	256,345
Stock-based compensation			3,023				3,290				13,346				12,262
Amortization of acquired technology			5,754				5,880				23,402				22,690
Transaction-related costs			—				18				—				18
Lease and other restructuring charges			556				23				1,117				23
Deferred revenue reduction from purchase accounting			69				129				344				644
Non-GAAP gross profit		$	90,795			$	75,542			$	340,860			$	291,982
Non-GAAP gross margin:
Non-GAAP gross profit		$	90,795			$	75,542			$	340,860			$	291,982
Non-GAAP revenue			162,187				146,671				624,968				566,317
Non-GAAP gross margin			56.0	%			51.5	%			54.5	%			51.6	%
GAAP sales and marketing expense		$	26,554			$	28,505			$	109,522			$	108,214
Stock-based compensation			(3,638	)			(3,755	)			(16,771	)			(15,379	)
Non-GAAP sales and marketing expense		$	22,916			$	24,750			$	92,751			$	92,835
GAAP research and development expense		$	34,271			$	34,041			$	137,334			$	130,103
Stock-based compensation			(3,466	)			(3,624	)			(15,157	)			(13,987	)
Non-GAAP research and development expense		$	30,805			$	30,417			$	122,177			$	116,116
GAAP general and administrative expense		$	30,283			$	23,696			$	110,186			$	90,163
Stock-based compensation			(9,242	)			(6,188	)			(33,914	)			(23,529	)
Non-GAAP general and administrative expense		$	21,041			$	17,508			$	76,272			$	66,634
GAAP operating loss		$	(18,017	)		$	(32,487	)		$	(86,057	)		$	(104,761	)
Deferred revenue reduction from purchase accounting			69				129				344				644
Stock-based compensation			19,369				16,857				79,188				65,157
Transaction-related costs			—				312				24				1,194
Amortization of acquired technology			5,754				5,880				23,402				22,690
Amortization of acquired intangibles			4,903				4,982				20,667				18,248
Lease and other restructuring charges			3,955				7,194				12,092				13,225
Non-GAAP operating income		$	16,033			$	2,867			$	49,660			$	16,397
Reconciliation of GAAP net loss to adjusted EBITDA:
GAAP net loss		$	(18,079	)		$	(32,411	)		$	(65,384	)		$	(108,983	)
Depreciation and amortization			17,943				16,422				71,707				61,659
Stock-based compensation			19,369				16,857				79,188				65,157
Provision for income taxes			2,059				735				3,562				2,908
Interest and other (income) expense, net			(2,131	)			(888	)			(4,724	)			1,087
Transaction-related costs			—				312				24				1,194
Lease and other restructuring charges			3,955				7,194				12,092				13,225
Gain (loss) on extinguishment of debt			—				—				(19,869	)			—
Deferred revenue reduction from purchase accounting			69				129				344				644
Adjusted EBITDA		$	23,185			$	8,350			$	76,940			$	36,891
Adjusted EBITDA margin			14.3	%			5.7	%			12.3	%			6.5	%

Q2 Holdings, Inc.
Reconciliation of Free Cash Flow
(in thousands)
(unaudited)
		Twelve Months Ended December 31,
			2023				2022
Net cash provided by operating activities		$	70,292			$	36,556
Purchases of property and equipment			(5,673	)			(11,142	)
Capitalized software development costs			(24,970	)			(18,910	)
Free cash flow		$	39,649			$	6,504

Q2 Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Revenue Outlook
(in thousands)
		Q1 2024 Outlook						Full Year 2024 Outlook
		Low			High			Low			High
GAAP Revenue		$	161,700		$	164,700		$	683,000		$	689,000
Deferred revenue reduction from purchase accounting			—			—			—			—
Non-GAAP revenue		$	161,700		$	164,700		$	683,000		$	689,000

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240221512714/en/

MEDIA CONTACT:

Jean Kondo

Q2 Holdings, Inc.

M: +1-510-823-4728

jean.kondo@Q2.com

INVESTOR CONTACT:

Josh Yankovich

Q2 Holdings, Inc.

O: +1-512-682-4463

josh.yankovich@Q2.com

Source: Q2 Holdings, Inc.

FAQ

What was Q2 Holdings' revenue for the fourth quarter of 2023?

Q2 Holdings reported revenue of $162.1 million for the fourth quarter of 2023, reflecting an 11% increase year-over-year.

How did GAAP gross margin perform for Q4 2023 compared to the prior-year quarter?

GAAP gross margin for Q4 2023 was 50.2%, up from 45.2% in the prior-year quarter, indicating an improvement.

What was the GAAP net loss for the full-year 2023?

The GAAP net loss for full-year 2023 was $65.4 million, showing a decrease from $109.0 million in 2022.

What was the adjusted EBITDA for the fourth quarter of 2023?

Adjusted EBITDA for the fourth quarter of 2023 was $23.2 million, a significant increase from $8.4 million in the prior-year quarter.

What are Q2 Holdings' financial guidance for Q1 2024?

Q2 Holdings provided guidance for Q1 2024 with non-GAAP revenue of $161.7 million to $164.7 million and adjusted EBITDA of $22.0 million to $24.0 million.

What are the new three-year financial targets announced by Q2 Holdings?

The new three-year financial targets include average annual subscription revenue growth of approximately 14%, average annual adjusted EBITDA margin expansion of 300 to 400 basis points, and free cash flow of greater than 70% of total adjusted EBITDA for 2026.