Why Q2 Holdings Pulled Back Following Its Latest Quarterly Beat

Q2 Holdings (QTWO +0.01%) 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.

IMAGE SOURCE: GETTY IMAGES.

Q2 Holdings results: The raw numbers

DATA SOURCE: Q2 HOLDINGS. 

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:

The second quarter was defined by broad-based strength across multiple products and end markets. On the product side, our corporate banking, Q2 Open and Centrix products contributed to another quarter of solid bookings. Looking at our end market, I would call out the strong contributions from banks outside the Tier-1 space. Year to date, our bookings from this market now exceed our total bookings from these same customers in 2017.

Regarding the Cloud Lending acquisition, Flake added:

By acquiring Cloud Lending, we will be able to help our community and regional financial institutions more effectively manage and grow their lending portfolios -- their fundamental income-generating activity. There's a substantial market opportunity for digital lending, and the addition of Cloud Lending's talented team and next-generation technology solutions will help Q2 expand our footprint in existing markets, as well as enter new ones.

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.