Why Q2 Holdings Pulled Back Following Its Latest Quarterly Beat

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Q2 Holdings (NYSE: QTWO) announced second-quarter 2018 results earlier this month, detailing solid top-line growth and a number of significant new customer wins for its increasingly popular digital-banking solutions. The company also raised its full-year outlook.

However, with shares down modestly in the wake of that report -- albeit after a nearly 60% year-to-date rise -- let's dive deeper to see what drove Q2 Holdings last quarter, and what investors can expect for the rest of this year.

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Q2 Holdings results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Growth

Revenue

$58.6 million

$47.6 million

23%

GAAP net income (loss)

($8.6 million)

($7.9 million)

N/A

GAAP earnings (loss) per diluted share

($0.20)

($0.19)

N/A

What happened with Q2 Holdings this quarter?

  • Revenue arrived above the high end of guidance provided in May, which called for a range of $57.9 million to $58.5 million.
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) soared 276% to $5.12 million, above the midpoint of guidance for a range of $4.7 million to $5.3 million.
  • On an adjusted (non-GAAP) basis, which removes items such as stock-based compensation and acquisition costs, Q2's net income was roughly $573,000, or a penny per share, swinging from a loss of $1.163 million, or $0.03 per share in the same year-ago period.
  • Q2 Holdings signed six new corporate banking customers during the quarter, including a top 50 credit union with $6 billion in assets.
  • Registered users grew 19% year over year to 11.4 million, up from 10.9 million last quarter.
  • Six net new Q2 Open deals were signed during the quarter, "representing a wide variety of fintechs."
  • Before the end of the quarter, on Aug. 8, Q2 agreed to acquire California-based lending and leasing platform specialist Cloud Lending, Inc. for $105 million. The deal should close in the fourth quarter of this year.

What management had to say

Q2 Holdings CEO Matt Flake stated:

Regarding the Cloud Lending acquisition, Flake added:

Looking ahead

For the third quarter of 2018, Q2 expects revenue ranging from $59.7 million to $60.3 million -- good for year-over-year growth of 19% to 20% -- and adjusted EBITDA of $5 million to $5.4 million.

As such, Q2 increased its full-year guidance for the second time in as many quarters, this time calling for 2018 revenue of $238 million to $239.2 million, up from $236.5 million to $238.5 million before, and adjusted EBITDA of $22.1 million to $23.5 million, up from $21 million to $23 million previously.

In short, though some investors were likely tempted to take profits off the table following the news, I think Q2 Holdings' latest quarterly beat and raise should leave long-term shareholders more than happy with its position. And if the company is able to sustain its momentum in the coming quarters, I suspect the recent pullback won't last long.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of Q2 Holdings. The Motley Fool has a disclosure policy.